AUR#642Constitutional Referendum; Lytvyn Interviewed; Kiev In A Squeeze; RosUkrEnergo; Corruption, Euro-Style; Gas Facts On Moscow’s Side

      THE ACTION UKRAINE REPORT – AUR
               An International Newsletter, The Latest, Up-To-Date
                    In-Depth Ukrainian News, Analysis and Commentary

                     Ukrainian History, Culture, Arts, Business, Religion,
        Sports, Government, and Politics, in Ukraine and Around the World       
                           

THE ACTION UKRAINE REPORT – AUR – Number 642
Mr. E. Morgan Williams, Publisher and Editor  
Washington, D.C., Kyiv, Ukraine, MONDAY, JANUARY 16, 2006
                           ——–INDEX OF ARTICLES——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
1. YUSHCHENKO DEFENDS GAINS OF THE ORANGE REVOLUTION
                  Will call national referendum on constitutional reform
INTERVIEW: With Ukraine’s President Viktor Yushchenko
BY: Tom Warner in Kiev, Financial Times
London, United Kingdom, Friday, Jan 13 2006

2. UKRAINIAN PRESIDENT BLAMES CRISIS ON PARLIAMENT
Ukrainian Radio First Programme, Kiev, in Ukrainian, 14 Jan 06
BBC Monitoring Service, UK, in English, Saturday, Jan 14, 2006

3. UKRAINIAN SPEAKER LYTVYN SAYS PARLIAMENT’S DECISION
       LAWFUL, NOW NECESSARY TO REFORMAT GOVERNMENT,
SHOULD NOT THINK ABOUT A CONSTITUTIONAL REFERENDUM
   Says Yuriy Yekhanurov now not prime minister but acting prime minister
INTERVIEW
: With Ukrainian Parliament Speaker Lytvyn
BY: Presenter Dmitriy Kiselyov, In Detail, ICTV television
Kiev, Ukraine, in Ukrainian, Sunday, 15 January 06
BBC Monitoring Service, UK, in English, Sunday, Jan 15, 2006

 
4. UKRAINE’S LEADER SEEKS TO REASSERT HIS POWER
            Over a turbulent political system and a rebellion by parliament
By Tom Warner in Kiev. Financial Times, London, Fri, Jan 14 2006

5.  UKRAINE’S PRESIDENT CALLS FOR A NATIONAL

                REFERENDUM ON CONSTITUTIONAL REFORMS
By Maria Danilova, Associated Press Worldstream
Kyiv, Ukraine, Saturday, January 14, 2006

6. PARLIAMENTARY-PRESIDENTIAL UKRAINE:

                                 WHAT WILL IT LOOK LIKE?
Vasyl Ivaskiv, Ukrinform, Kyiv, Ukraine, Friday, January 13, 2006

7. “KIEV IN A SQUEEZE”
LEAD EDITORIAL: Financial Times, London, UK, Mon, Jan 16 2006

8.  “WHAT’S GAS GOT TO DO WITH IT?”
             Gas deal was only a pretext for sacking Ukrainian cabinet
ANALYSIS & COMMENTARY
: By Olha Len
Glavred, Kiev, Ukraine, in Russian, Tuesday, Jan 10, 2006
BBC Monitoring Service, UK, in English, Saturday, Jan 14, 2006

9. UKRAINE PRESIDENT DEFENDS GAS DEAL WITH RUSSIA 
Associated Press (AP), Kiev, Ukraine, Saturday, January 14, 2006

10. PRESIDENT VIKTOR YUSHCHENKO STATES READINESS TO
            BE RESPONSIBLE FOR EVERY ITEM OF UKRAINIAN –
                                 RUSSIAN GAS AGREEMENT
Oleksandr Khorolskyi, Ukrinform, Kyiv, Ukraine, Thu, January 12, 2006

11. UKRAINE PRESIDENT SAYS POLITICS BEHIND RUMOURS OF
SHADY INDIVIDUALS BEHIND RUSSIAN GAS FIRM ROSUKRENERGO
UT1, Kiev, Ukraine, in Ukrainian 1921 gmt 13 Jan 06
BBC Monitoring Service, UK, in English, Friday, Jan 13, 2006

12. PRES REMARKS ON ROSUKRENERGO DO NOT HOLD WATER

LETTER TO THE EDITOR: From Roman Kupchinsky
Investigative Journalist, Prague, Czech Republic
RE ARTICLE: Ukraine President Says Politics Behind Rumours
of Shady Individuals Behind Russian Gas Firm Rosukrenergo
UT1, Kiev, Ukraine, in Ukrainian 1921 gmt 13 Jan 06
BBC Monitoring Service, UK, in English, Friday, Jan 13, 2006
Letter published by The Action Ukraine Report (AUR), #642, Article 12
Washington, D.C. Monday, January 16, 2006

13. PRESIDENT YUSHCHENKO SWEARS BY RUSSIAN GAS DEAL
                   WHILE PM YEKHANUROV SPILLS THE BEANS
            Yekhanurov shines light on murky aspects of Russian gas deal
ANALYSIS & COMMENTARY: By Vladimir Socor
Eurasia Daily Monitor (EDM), Volume 3, Issue 9
Jamestown Foundation: Wash, D.C., Friday, Jan 13, 2006

14. UKRAINIAN LAWMAKERS ASK PRES FOR MORE INFORMATION
      ON MIDDLEMAN ROSUKRENERGO IN GAS DEAL WITH RUSSIA
Maria Danilova, AP Worldstream, Kiev, Ukraine, Friday, Jan 13, 2006

15. UKRAINIAN PARLIAMENT DEMANDS ROSUKRENERGO AUDIT
      Russian Duma also orders information about owners of RosUkrEnergo
RIA Novosti, Moscow, Russia, Friday, January 13, 2006

16. CORRUPTION, EURO-STYLE
   A shadowy middleman company called RosUkrEnergo will buy the gas
    from Russia at the price Moscow wants, mix it with cheaper gas from
   Turkmenistan and sell it to Ukraine for double the price it is now paying.
COMMENTARY
: By John Hall, Media General News Service
Scripps Howard News Service, Wash, D.C., Fri, January 13, 2006

17. GAZPROM TO TAKE DIRECT PART IN ROSUKRENERGO
                        A foreign bank represents Ukraine’s interests

Better Gazprom and Naftogaz Ukrainy be co-founders of the joint venture
ITAR-TASS, Moscow, Russia, Sunday, January 15, 2006

18. RUSSIA’S GAZPROM CHIEF TALKS ABOUT ENERGY

                             DEALS WITH UKRAINE, GERMANY
         Structure of Russian-Ukrainian joint venture, Rosukrenergo, must
         become absolutely transparent. For Ukrainian side, in this joint
         venture it is represented by a foreign bank. Russia has many
         times raised the question that it would be right if the founders 
         were Gazprom and Ukraine’s Naftohaz.
INTERVIEW: With Aleksey Miller, Head of Gazprom
BY: Sergey Brilev, Presenter of Vesti Nedeli programme
RTR Russia TV, Moscow, in Russian 1700 gmt 15 Jan 06
BBC Monitoring Service, UK, in English, Sunday, Jan 15, 06

19. PACE GLOBAL ENERGY SERVICES ISSUES WHITE PAPER
        ADDRESSING RUSSIA-UKRAINE NATURAL GAS DISPUTE
U.S. Newswire, Washington, D.C., Friday, Jan 13, 2006

20. GAZPROM’S COLD WAR ENDS
ANALYSIS & COMMENTARY: By Anna Raff
Assistant News Editor for Energy, Dow Jones Newswires
New York, New York, Monday, January 16, 2006

 
21. QUESTIONAIRE REGARDING GAZPROM-NAFTOGAZ DISPUTE
                        Please fill out and return as soon as possible
Dmitri Klimentov, Bureau Chief/NYC
Russian Information Agency Novosti
New York, NY, Friday, January 13, 2006
 
22. THE FACTS ON MOSCOW’S SIDE
        Neither the facts nor U.S. interests justify siding squarely with Kiev
COMMENTARY & ANALYSIS: By Dimitri K. Simes
President, Nixon Center and publisher of the National Interest
Los Angeles Times, Los Angeles, CA, Saturday, January 14, 2006
========================================================
1. YUSHCHENKO DEFENDS GAINS OF THE ORANGE REVOLUTION
                     Will call national referendum on the Constitution
 
INTERVIEW: With Ukraine’s President Viktor Yushchenko
By Tom Warner in Kiev, Financial Times
London, United Kingdom, Friday Jan 13 2006

Ukraine’s president Viktor Yushchenko spoke to Tom Warner in Kiev

about the recent attempt by parliament to dismiss the government and
about Ukraine’s gas price dispute with Russia. The following is a
transcript of the interview.

[FT- WARNER] How did parliament’s vote on Tuesday to sack your
government change your ability to control domestic politics and conduct
foreign policy?

[YUSHCHENKO] First of all, the vote was unconstitutional and illegal.
According to the current constitution, the cabinet can be dismissed if the
prime minister or the whole cabinet ask to resign, or through a vote of
no-confidence in the prime minister.

Such a no-confidence vote can be held at the president’s initiative after a
proposal to parliament or on the initiative of 150 deputies [one-third of
parliament]. No such proposal from the president nor any such initiative by
150 deputies was made. So one can say parliament committed a serious
violation of the constitution.

And therefore today I firmly declare that the status of the government, of
the prime minister and every minister, is the same as it was five days ago
or a month ago. And that status answers the provisions of the constitution.

Most likely, talk about a so-called dismissal of the government had one
purpose – to destabilise the political situation in Ukraine 80 days before
the end of the campaign for parliamentary elections [due on March 26].

Nobody today has any doubt about the illegality of parliament’s vote. Even
those who supported it today are calling on the government to work calmly
until the completion of the elections and the formation of a new government.

That shows once more that the main point was not to evaluate the
government’s work, to act according to the constitution, but to make
political PR for the Yulia Tymoshenko bloc, the Lytvyn bloc, the Social

Democrats. These groups need turbulence. It was their political game. They
don’t represent any other values in this country anymore.

[FT- WARNER] But doesn’t your administration suffer from the image that
you are losing control and that your government is in legal limbo?

[YUSHCHENKO] I think if you read the changes that were made to the
constitution [agreed during the 2004 Orange Revolution and taking effect on
January 1 this year, which stripped the presidency of most of its powers,
including the powers to nominate the prime minister and form the cabinet],
you will very easily come to the conclusion that the powers of the Ukrainian
president under the new constitution are [still] much greater than many
presidents in Europe. So there’s no need for regrets about that.

I think the most important thing that we should demonstrate today in such a
crucial period of Ukrainian democracy, during this election campaign and the
parliamentary elections, are a number of principles, among which I would
place [1] first respect for the constitution and the law. I think that is
the primary characteristic of a democracy.

[2] Second, the nation and especially political forces should demonstrate
solidarity. Because this is a difficult period. And I think that
establishing stability would be the best background for holding these
elections.

Today we have a government with full powers, a fully working executive
branch at all levels. This parliament is already in its last days, it’s
going on a break and then there will be elections. That’s why I feel that
there’s absolutely no doubt about whether the government can manage the
country. I have proposed to parliament to revoke its resolution regarding
the dismissal of the cabinet. I have sent instructions to the regional
governors on the fulfilment of their duties during the first quarter of this
year.

I also revoked my signature from the memorandum on cooperation between
the authorities and the opposition [signed in September with most
parliamentary opposition leaders, in order to secure confirmation of his
prime minister, Yuri Yekhanurov], because a number of opposition groups
broke the obligations they undertook.

That’s why I think this political adventure thought up by the Tymoshenko
bloc, the Social Democrats, the Communists, had one goal: not to judge the
government’s work according to the constitution, but to destabilise the
situation. They won’t succeed.

[FT- WARNER] Are you worried that you could end up like Mykhailo
Hrushevsky, who founded Ukrainian democracy in 1918, but couldn’t
defend it?

[YUSHCHENKO] Well, that’s a somewhat different question. We start
from the position that the changes to the constitution were an anti-
constitutional action, hidden from the people. The changes to constitutional
order happened without a national referendum, as the constitution demands,
and with violations of the procedure for their consideration by parliament,
including the obligation for discussion. Not one statute was discussed in
parliament. And a number of other things back up the conclusion that the
changes were unconstitutional.

And from there I derive the logic of my next steps, which will be outlined
in a separate initiative. I think it shouldn’t be done right now for one
reason: it could destabilise the situation before the elections. But that
the constitution will have to be defended is an obvious fact, with the help
of the people, with the help of a referendum, with the mobilisation of all
democratic forces. After that I will give the full answer to your question,
‘how we defended Ukrainian democracy’.

[FT- WARNER] When will this referendum on the constitution be held?
[YUSHCHENKO] I would not like to answer that question, because it’s a
separate plan, which I would like to be agreed, more or less agreed through
the internal political processes in the country.

[FT- WARNER] But there will be a referendum, sometime?
[YUSHCHENKO] Well, I said what I said.

[FT- WARNER] Many people who supported the Orange Revolution have
recently been criticising you and questioning whether you have the strength
or the desire to stand up for its ideals. Why do you think there is such
disappointment?
[YUSHCHENKO] [Interrupting] And disappointment about what, tell me?
For example, are people dissatisfied with freedom of speech, with democracy,
with the availability of work, with pensions, with the economy? Where is the
disappointment, tell me, and it will be easier for me to comment.

[FT-WARNER] About the pace of change, about the economy.
[YUSHCHENKO] Let me simplify your mission. Because there is no
disappointment of any kind. If we’re speaking seriously. If we’re speaking
politically .

[FT- WARNER] Why have the poll ratings of your party been falling?
[PRESIDENT] Well, poll ratings, that’s different. Let’s take seriously this
question that you’re posing. If you compare the combined ratings of the
democratic forces that made the Ukrainian revolution one year ago and
today, their ratings have increased.

We’re talking about Our Ukraine [his party], the Socialists, the Tymoshenko
bloc, the Party of Industrialists and Entrepreneurs and another 15 or so
parties. If you combine all the ratings of these groups I assure you that
trust in them has grown, not shrunk. How and why that trust is divided
among the different parties is another question, which you aren’t asking,
although I could also give an answer.

So, the democratic forces, the democratic potential, the democratic values
which were declared on the Maidan [Kiev’s central square] have not been
betrayed one iota, not by the revolutionaries nor by the people who stood
together with us on the Maidan. I want that to be heard as a matter of
principle. All the rest is just vinaigrette which you can make from
different ingredients. The democratic potential of this country has not been
set back at all.

Not only is there no turning away from the democratic values that were key
to the events of November 2004, I would underline that we have made
obvious progress in strengthening those values. You as a journalist can
easily notice the freedom of speech in this country, which a year ago wasn’t
even imagined.

We have public, honest political competition. No one is persecuting anybody,
not the SBU (state security service), not the police, not the president, not
the prime minister.

We have economic progress. Ukraine’s economy a year and a half ago
survived the kind of shock which I think no country in Europe has felt in
a long time. It’s obvious: a pre-election period, then a revolution, for
business it was a difficult trial. Today we have an economy with about 3 per
cent GDP growth, where real incomes increased last year by 21 per cent,
where personal bank deposits grew by I think by 76 per cent.

If we’re talking about the social component, 2005 was the most successful
year this country has known. Never before in our history have wages grown
by 35 per cent, have minimum pensions been level with the minimum livable
income. The budget deficit is smaller than planned. The central bank’s
reserves doubled and equal about 7 months of imports. Foreign investment
increased to $7bn, when total foreign investment over the previous 14 years
had totalled $9bn.

If we’re speaking honestly and professionally, we can draw three key
conclusions.
[1] First, Ukraine preserved economic stability and in recent months has
added a growth dynamic in key economic sectors and a fiscally balanced
budget system.
[2] Second, there is a high level of macroeconomic culture which is
encouraging growth in investment and the development of particular
economic sectors.
[3] Third, we have freedom of speech – that’s a unique victory of the
revolution.

Of course there are many challenges, including the problem of corruption.
But allow that corruption did not begin with the revolution. It’s something
we inherited from the previous authorities. Ukraine rose from 128th place in
the rankings of international analysts to I think 112th place.

[Transparency International’s corruption perceptions index put Ukraine in
a 10-way tie for 107th place out of 159 countries in 2005 and a seven-way
tie for 122nd place out of 146 countries ranked in 2004]. That’s not so
much, but it’s after just seven or 10 months of this administration.

[1] First, we’ve changed thousands of bureaucrats, brought in more honest
and more professional people. And of course we adopted new policies to
combat corruption, which don’t bear fruit immediately.

[2] Second, we are radically reviewing the functions of government, and
have already cancelled almost six thousand different kinds of legal acts,
including laws, presidential decrees and other regulations, in order to
minimise the bureaucrat’s influence on the economy.

[3] Third is the court system. Ukraine hasn’t had independent judges for a
long time. When we came to power, 40 per cent of court decisions weren’t
being fulfilled. The president has little influence over the selection of
judges. We are preparing a judicial reform which will deal with these
problems.

[4] Fourth, we want to get rid of the problem of impoverished officials
who look at every visitor as a potential payer of tribute. That’s why we
seriously increased state officials’ pay, starting with judges, whose pay
was doubled in this year’s budget, and ending with executive branch
officials. The goal is to show people how to live honestly, so they don’t
need to take bribes.

The interior ministry has opened more than 1,500 criminal cases against
officials. That’s several times more than in previous years. Taking these
cases to court of course presents difficulties, and not small ones.

I just want to attest that the president and executive authorities are doing
their work. Get to know Ukraine better, remember the challenges that this
country faced, or better understand the actions that this government is
taking, so that you don’t make overly pessimistic evaluations.

That’s me attacking you, because there’s two options: either you attack the
journalist, or the journalist attacks you.

[FT- WARNER] This recent agreement with Russia on natural gas supplies
and its inclusion of RosUkrEnergo as sole supplier to Ukraine has raised
many questions.

[YUSHCHENKO] I’ll start with the history. The gas which we bought from
Turkmenistan has always been supplied the same way – across the territory of
Russia. There is no alternative. And that transit has been carried out of by
one of three organisations during the past five or seven years.

There has always been some kind of Russian organisation which, in the name
of Gazprom, carried out the transit of Turkmen gas belonging to Ukraine
across Russia. Before the Orange Revolution and since, nothing about that
practice has changed.

Ukraine has never in any way had any relationship with the formation of
these organisations, please underline that. And I declare now that Ukraine
doesn’t have any relationship to RosUkrEnergo, neither as a country nor as
some kind of corporate structure.

RosUkrEnergo was formed by Gazprombank, a Gazprom structure, and a
daughter company of Raiffeisen Bank, to which Ukraine has no relationship
and couldn’t have.

I asked the Russian president to give all the help needed so that Ukraine,
as one of the interested parties in the transit of gas, would receive a
corresponding place in RosUkrEnergo, so that we would feel ourselves a full
member of the gas transit process, with the use of any structure including
the one we’re talking about. And that’s all I can say about that question.

[FT- WARNER] Why are so many representatives of big industry criticising
the gas deal?
[YUSHCHENKO] If they have a way to buy gas cheaper, they can do that.

I can only attest that the price for gas that Ukraine has today, $95 per
thousand cubic meters, is the cheapest price for gas in eastern Europe.
Please underline that. Except Belarus. If any of these businessmen have the
means to receive gas even cheaper, I would only welcome it. Maybe in
England they can buy gas cheaper. It’s I guess $410 there.

[FT-WARNER] After this week’s vote, which of the main parties is it still
possible for your party to join with in a coalition? Particularly regarding
the Tymoshenko bloc, Lytvyn bloc and Regions party, do you rule any of
them out?
[YUSHCHENKO] I think it’s still too early to talk about that. Because no
one knows the final strength of this or that political force, how they will
finish the electoral marathon, how they will be represented in parliament.

I want to say one thing, the political force that will get the largest
number of seats in parliament will be Our Ukraine. But the party will have
to consider with whom to form a coalition. It all depends on the other
political forces’ results.

[FT- WARNER] So a coalition is possible even with Regions?
[YUSHCHENKO] We will start from the position that the political coalition
should correspond to the political, economic and humanitarian values that we
spoke about on the Maidan – that is, democratic values. The criteria will be
the possibility to share common policies. Without any other conditions set
beforehand. Without any.

[FT- WARNER] So then if Regions continues to oppose what was said
and done on the Maidan, then that excludes the possibility of a coalition?
[YUSHCHENKO] You know, when you look at how the Tymoshenko bloc
votes, there’s no force more against [what was said and done on the Maidan],
starting with the laws needed to enter the World Trade Organisation and
ending with the budget, the new fiscal politics. [note: the Tymoshenko bloc
voted for WTO accession bills].

So the logic of all these groups you’ve mentioned is very flat-footed and
simple – when you’re not in government, you should say everything against
government. As if in that way you will get more votes.

Unfortunately Tymoshenko went down that road and joined up with the
Communists and [Viktor] Yanukovich [leader of the Regions party and Mr
Yushchenko’s opponent in the 2004 presidential election]. And her decision,
this week’s vote by her bloc, is a demonstration of how national interests
can be betrayed.

I understand that it’s an election campaign. The groups we’re talking about
have traditionally run dirty campaigns. This will all pass.

I think people are starting to understand better who is who in Ukrainian
politics, what kind of policies they carry out, what kind of goals they
have. And what’s going on now, I think it’s a good test for the voter,
showing how much this or that political force values political stability,
how much they respect the constitution. I think it’s a good set of tests for
those political forces which have such destructive positions and which want
to form the future coalition in parliament and the government.

[FT- WARNER] How did Russia’s actions to reduce supplies of natural
gas into Ukraine’s pipeline, change the way you see the future of Russian-
Ukrainian relations?

[YUSHCHENKO] I felt it every second. When on December 22 I read the
official letter from Gazprom where the price of $230 [per thousand cubic
meters] was officially raised for the first time, I immediately told my
colleagues at Naftogaz [Ukraine’s state oil and gas company] that above all,
that is a political price, that of course this is political pressure on
Ukraine.

And that we needed to find a professional answer, to take this conflict out
of the political sphere and regulate it on the level of business.

I won’t retell what we went through when they cut us off by 122 million
cubic meters per day, which we used exclusively to secure transit of gas to
Europe. Russia paid us with that gas for transit services. And when those
payments were stopped we withdrew 107 million cubic meters over two days
from our underground storage and sent it west to Europe, so that Europe
wouldn’t feel what Ukraine felt after the gas was cut off.

And I think Europe knows that and understands, that we wanted to
demonstrate respect to consumers and to our political partners in the west,
and demonstrate complete guarantee of transit services from the Ukrainian
side. Now it’s all in the past. The most important thing is, we have gas for
$95 per thousand cubic meters at the Ukrainian border.

[FT- WARNER] But only for six months, and then what?
[YUSHCHENKO] If you read the agreement attentively, it says neither the
price of gas nor the tariffs on transit of gas to Europe can be changed
unilaterally by either side. And the half-year duration is there only in
case, in the second half of the year, the price for Turkmen gas will
increase by $10, and that of course needed to be accounted for in the
agreement. And that’s all. But the basic agreement says that for 5 years
neither side has the right to review the price.

[FT- WARNER] But if Russia and Ukraine can’t agree on prices, it seems
the only way either side can bring pressure on the other is to cut supplies
of gas to Europe.
[YUSHCHENKO] You know, I think that those methods are already in the
past. I think that was the main lesson learned from this conflict. And that
Ukraine still has the cheapest gas in eastern Europe after Belarus is a
success of that policy. We raised the rate of transit tariffs, which hadn’t
changed in more than 10 years. We received an increase of 11 billion cubic
meters of gas across Ukraine.

In 2005 we already had the most ever transit of gas across Ukraine, 120
billion cubic meters, including Russian, Turkmen and some Uzbek gas. In
2006 Russian gas alone will come to 121 billion. We established regulation
of domestic gas prices by the National Electro-energy Regulation
Commission, which demonstrates that we have a thought-out, very
harmonious market mechanism.

[FT- WARNER] You aren’t afraid that Russia could again use the same
method of pressure in six months or in a year? Do you agree with those
who say that Russia did it in order to push the Ukrainian parliament to sack
your cabinet?

[YUSHCHENKO] I don’t rule that out, but I won’t be the propagandist of
that point of view, because it would be uncomfortable for me as president,
it would be incorrect. If in our times there are authors of that kind of
politics, then I would say that is weak politics, which has no perspective.
I think Russia learned lessons, and Europe, and of course Ukraine.

I think that what happened led many, including European organisations to
look differently at their conception of the organisation of the European
energy market. And that’s why Ukraine is ready today to integrate as
deeply as possible with the European energy market.

We would like to propose to work together with countries that have
resources to form the maximum market-based, maximum guaranteed model
of supplies and transit of gas across Ukraine to Europe. We would like to
present our strengths in transit to those countries that have gas. We are
proposing to form new routes to secure the gas market from other sources.

I don’t like the world “alternative” in this case. We simply, honestly
should resolve how energy policy should be more diversified, and decide
on realistic options. I’m speaking first of all about the countries of
central Asia, which, I’m convinced, would like to be more strongly
represented on the European market.

The same goes for Russia. We would like to expand our cooperation with
Russia. We are talking today about the possibilities to expand certain
bottlenecks in the transit system. For example the Bohorodchany-Uzhhorod
link could increase transit possibilities to Europe by 20 billion cubic
meters per year. These are projects where we would like to see Russian
participation and European partners.

We want to demonstrate to everyone that we would like to make Ukraine’s
transit market more accessible, so that in turn that market would be
established as the most secure route of supplies for many, many years. We
are speaking about Kazakhstan, we are speaking about Turkmenistan, we
are speaking about different options of supplies of central Asian gas in
this.

We are speaking about different options of supplies of central Asian gas,
including across the Caucasus and the Black Sea. And it’s important here of
course to find healthy compromises with everyone – to wreck things less and
approach these questions more constructively.

[FT- WARNER] But you won’t give a stake in Ukraine’s transport system
to Gazprom?
[YUSHCHENKO] No. The Ukrainian gas transport system today belongs
to Ukraine and Ukraine will not consider any questions regarding a change
of that status.  -30-
———————————————————————————————

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
2. UKRAINIAN PRESIDENT BLAMES CRISIS ON PARLIAMENT
            Government sacking was “illegal & improper” resulting from
                            “ill-conceived” constitutional reform

Ukrainian Radio First Programme, Kiev, in Ukrainian, 14 Jan 06
BBC Monitoring Service, UK, in English, Saturday, Jan 14, 2006

Ukrainian President Viktor Yushchenko has condemned parliament’s

decision to sack the government as a deliberate violation of the constitution.
Speaking in a weekly radio address to the nation, Yushchenko said the sacking
was “illegal and improper” and resulted from “ill-conceived” constitutional
reform.

He gave assurances that the Cabinet of Ministers will keep working until a
new parliament is elected. He also criticized MPs for blocking a settlement
of the crisis through the Constitutional Court, which has not been formed or
sworn in by parliament yet. Yushchenko also praised the recent gas deal with
Russia, saying that Ukraine secured favourable conditions.

He promised no gas price rises for households and stressed the importance
of energy saving. The following is the text of a prerecorded radio address
by Yushchenko broadcast by Ukrainian radio on 14 January; subheadings
inserted editorially:

[Yushchenko] Dear Ukrainian public. The New Year and Christmas holidays are
coming to an end. I hope they were merry, kutya [Ukrainian Christmas dish]
was delicious and your homes, I am certain, were warm and comfortable.

Today I will talk about two key events in January of the new year –
successful gas talks [with Russia] and the situation following the decision
by the Supreme Council [cabinet dismissal by parliament].
              GAS CONFLICT SUCCESSFULLY RESOLVED
But first and foremost I want to thank all those who supported the
authorities in those difficult times, because in reality it was not gas that
was at issue. We were facing a threat of losing our sovereignty, economic
independence and our freedom. Those were days of testing for political
unity and the unity of the whole of the Ukrainian people.

My best compliments to young people who supported one another on their
mobile phones by circulating text messages “Hold out and we shall win”.
My thanks to all those who sent warm letters and telegrams and to all the
political forces which have succeeded in standing this difficult test of
political maturity. I am thankful to all of you for understanding, support
and unity in days of great challenge.

The situation around gas has shown that Ukraine can defend its national
interests and can be a predictable and reliable partner. The price of 230
dollars per 1,000 cu.m. of gas suggested by [Russian gas monopoly]
Gazprom was ungrounded primarily economically and, for that reason, was
absolutely unacceptable to us.

What have we arrived at? We now have a price of 95 dollars per 1,000 cu.m.,
which is 30 per cent less than the price for the Baltic states, the Caucasus
and for all our neighbours in the post-Soviet space.

We have raised the rate of transit of Russian gas through Ukraine by 47 per
cent. It is now 1.6 dollars per 1,000 cu.m. [per 100 km]. According to the
[4 January gas] agreement, the volume of Russian gas transit to Europe
through the Ukrainian gas transport system increased by 10 per cent for
2006.

For this, the budget of the country will receive more than 2.5bn dollars.
The Ukrainian and Russian sides have agreed that the prices of gas and gas
transit can only be changed upon the consent of both sides.

The governments of the two countries will shortly sign an additional
protocol which will clearly set out all the technicalities of supplies. The
Ukrainian Cabinet of Minister has already been involved in drafting this
document.

Therefore, our relations with Russia on the gas issue have become more
predictable, rational and economically justified.
NO PRICE RISES FOR HOUSEHOLDS, NEED TO SAVE ENERGY
Furthermore, the price of gas for residential consumers will not be raised
in this heating season, and this is my position of principle as the
president and also the position of our government. It is justified by the
fact that the population mostly uses domestically produced gas.

As for industry, the price of gas for it will be set depending on how much
fuel is used. The government has developed a mechanism to make price
hikes impossible and ensure their gradual liberalization. In the short-term,
industrial gas consumers should introduce energy-saving technologies and
switch, where possible, to other types of fuel, including alternative ones.

Here’s another important conclusion. We must radically change our energy
consumption and energy saving policies. This is obvious. I am convinced
that a good master of the house is a thrifty one. The Ukrainian economy on
average consumes four times the amount of natural gas that EU countries do.

The world uses one simple formula – a state should consume 1bn cu.m. of gas
per million people. Our target is to reduce annual consumption from 76bn to
about 50bn. This will force us to optimize natural gas consumption in a
drastic and swift manner, primarily in industry. I am convinced that both
the state and company owners should care about this.

I will strictly demand that the government, company managers and the housing
and utilities sector should introduce an energy saving regime. But the issue
of saving heat in every household and in every family is also crucial.

I remember from my childhood that our whole family, my parents, together
insulated windows and put straw and potato tops around our house to keep
it warm. Those who save things always have things.
                     GOVERNMENT SACKING ILLEGAL
I hope you understand that the gas subject is not only economic. It is
directly linked to the latest events in the Supreme Council. I would like to
stress once again that there is a fully-fledged functioning government in
Ukraine, which is headed by Prime Minister Yuriy Yekhanurov. This
government will carry out its duties until a new Cabinet of Ministers is
formed after the parliamentary election [on 26 March 2006]. The “acting”
prefix is out of the question.

I set out my position in a letter to heads of regional administrations and
other representatives of the executive branch in the regions. The whole
structure of executive power is working and will work as usual. In a week’s
time when parliament goes on holiday, the president, the government and
the whole system of executive bodies of power will keep working in a full
composition and in a reinforced manner.

The decision by the Supreme Council to dismiss the Cabinet of Ministers is
illegal, improper and actually anti-state. It is a consequence of
ill-conceived amendments to the constitution and ignorance of it. Under the
guise of the changes, an attempt to infringe the country’s constitutional
order is being made.
NO CONSTITUTIONAL COURT IN PLACE TO SOLVE CRISIS
It is the Constitutional Court only that can give a legal assessment of
parliament’s decision. I as president of Ukraine, in line with the law, has
appointed judges of the Constitutional Court. A congress of Ukrainian
judges has also approved candidacies of judges of the Constitutional Court.

Today, because of the destructive position of the Supreme Council, which
has not elected its portion of judges or sworn them in, we have a powerless
Constitutional Court while the Ukrainian constitution has, in essence, been
deprived of any say.

As a result, we do not have a fully-formed institute which could solve such
conflict situations on a constitutional level. I believe that it is a
deliberate position of some political forces in the Supreme Council, which
may lead to an unstable situation in this country. Instead of constitutional
reform, we have received alarming signals of a possible constitutional
crisis.

As the guarantor of the constitution, I will take the necessary steps to
ensure stable and predictable development of the state. I have already
addressed a demand to the Supreme Council to cancel the

unconstitutional decision to sack the present government.

I hope that respect for the constitution and for Ukrainian citizens will
outweigh the personal ambitions of some members of parliament and
political forces.

In conclusion, I would like once again to express my belief that the new
year 2006 will be happy for each citizen of our state. May all your homes
enjoy peace and wellbeing. I wish you happiness and may the Lord keep
you.   -30-
———————————————————————————————

[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
3. UKRAINIAN SPEAKER LYTVYN SAYS PARLIAMENT’S DECISION
     LAWFUL, NOW NECESSARY TO REFORMAT GOVERNMENT,
 SHOULD NOT THINK ABOUT A CONSTITUTIONAL REFERENDUM
    Says Yuriy Yekhanurov now not prime minister but acting prime minister

INTERVIEW: With Ukrainian Parliament Speaker Lytvyn
BY: Presenter Dmitriy Kiselyov, In Detail, ICTV television
Kiev, Ukraine, in Ukrainian, Sunday, 15 January 06
BBC Monitoring Service, UK, in English, Sunday, Jan 15, 2006

KYIV – Speaker Volodymyr Lytvyn has said that parliament may reconsider

its 10 January resolution dismissing the government of Yuriy Yekhanurov if
President Viktor Yushchenko and political forces in parliament agree on
replacing a number of ministers.

Speaking during a live studio interview with presenter Dmitriy Kiselyov on
the In Detail programme on ICTV on 15 January, Lytvyn said it was necessary
to include more professionals and fewer politicians in the government.

Lytvyn said that this would expand the basis of support for the government
in parliament and in society. Lytvyn also warned of possible negative
consequences if Yushchenko calls a referendum on the changes to the
constitution increasing the powers of parliament, which came into force on 1
January.

The following is an excerpt from Lytvyn’s interview on Ukrainian ICTV
television on 15 January:

[Kiselyov, throughout in Russian] Our guest in the studio is parliament
speaker Volodymyr Lytvyn, who played a key role in making peace between

the sides during the crisis at the end of 2004. Volodymyr Mykhaylovych, it
seems your peacemaking abilities are needed again.

[Passage omitted: Lytvyn rejects propresidential Our Ukraine People’s Union
head Roman Bezsmertnyy’s criticism of the government’s dismissal in a
newspaper interview – see Gazeta Po-Kiyevski, Kiev, in Russian 13 Jan 06.]

[Kiselyov] The president has said this decision by parliament [to dismiss
the government] was unconstitutional. He has urged the government to ignore
it. He says the government and the prime minister are working without
prefixes [signifying acting status]. What are the possible ways out of the
situation?

[Lytvyn, throughout in Ukrainian] I think there is one way out. It is
necessary to read the constitution carefully and start to live according to
the constitution that has been in force since 1 January 2006. Unfortunately,
some people want to live according to a constitution that is a thing of the
past. Others want to live according to a constitution that they have
constructed for themselves in their heads and about which they are not
talking to Ukrainian society yet.

At the same time, they were not able to read the provisions of the actual
constitution. It is simply necessary to study it. And clearly it is
necessary to join efforts to develop an official commentary in order to be
able to interpret this or that provision on the same level, proceeding from
the legal prescriptions of the constitution. Then we’ll have order.

Otherwise, we have to act as if the constitution is not valid, as if it does
not exist, as if the revolution is continuing. But it is necessary to take
account of the fact that, unfortunately, revolutions have never made anyone
happy – at least, not in the first decades after they happen.

[Passage omitted: Lytvyn recalls adoption of amendments to constitution in
December 2004; Lytvyn’s proposal to cancel dismissal resolution through
dialogue with president and prime minister quoted.]
   CALLS FOR MORE PROFESSIONALS IN GOVERNMENT
[Kiselyov] This quotation was published by UNIAN news agency on Friday
evening [13 January]. Has the president reacted? Did you meet Viktor
Andriyovych [Yushchenko] yesterday?

[Lytvyn] On Friday, I had a long telephone conversation with the president.
We agreed to meet on Monday [16 January]. I hope that this agreement will

be realized. I would like to use this opportunity to state once again my view
on the future development of events, if we want the country to develop in a
stable and predictable way and for society to be at peace.

[1] First, it has to be acknowledged that parliament’s decision has come
into force. It is published, and nobody except the constitutional court can
cancel it. Everyone has to take this for a given.

[2] Second, it is necessary to have a dialogue. I am ready for a public
dialogue, in order to express my position in full, so that people see and
hear the arguments, and don’t just listen to one side. Especially since, in
many cases, things are like they were in the Soviet Union: we have only free
media, all the rest are banned.

[3] Third, it is clearly necessary to acknowledge that the government is
operating with a somewhat reduced status, after receiving a warning over the
result of its recent work, and over its non-transparent work in resolving
gas problems.

The government is working under a warning, in yellow card conditions,
because disregarding parliament’s decision, it decided to raise the price of
gas and electricity for the price. Even though parliament warned that this
should not be done and again adopted a resolution on this.

The next steps. It is necessary to determine what the government has to do
together with the president and parliament in order to resolve urgent social
and economic problems until the end of the election campaign. I want to
recall that the government does not have an activity programme, and so
parliament’s assessment is completely obvious and just.

On the basis of this programme, it is clearly necessary to reformat the
government, to include in it people who are professionals – the sort of
people that the president said he wanted to see working in the government –
that is professionals, and fewer politicians. This will allow the
government’s support base in parliament and in society to be expanded.
[Passage omitted: brief technical glitch]
   PARLIAMENT MAY REVIEW GOVERNMENT DISMISSAL
[Lytvyn] The next logical step. On these conditions, after the reformatting
of the government, after the renewal of the government personnel, parliament
may reconsider the resolution it adopted on 10 December and repudiate or
cancel it. That is my view, my proposal. I think that parliament may incline
to this point of view if the candidates for renewing the government are
agreed.

[Passage omitted: Lytvyn compares dismissal of Yekhanurov’s government

with dismissal of former Prime Minister Viktor Yanukovych in 2004.]

I want to recall that anyone who reads the constitution carefully will see
that there are at least five grounds for dismissing the government.
[1]  First, resignation of the government after the election of a new
government.
[2]  Second, resignation of the government in accordance with the
government’s own request – parliament may or may not accept the

resignation.
[3]  Third, a vote of no confidence in the government by parliament.
[4]  Fourth, sacking of the prime minister and members of the Cabinet of
Ministers – some or all of them.
[5]  Fifth, resignation of the Cabinet of Ministers on the initiative of
parliament.

So it was necessary to look at these approaches and trends in the changes

to the constitution, and not try to revise them, and develop joint rules of
play so that we do not have divergent interpretations.

[Kiselyov] What you are saying is very interesting, but you are talking
about reformatting the government. What does this mean? Forming a new
government? Who should initiate this? What is the mechanism?

[Lytvyn] I think that the president and political factions in parliament
could initiate this. I do not mean a completely new government, but a
partial change calculated so that the support base expands to at least
240-250 MPs. Today, on the basis of representation of factions in the
government, this support is in the range 100-120 MPs.

[Kiselyov] Who is the government today. Is Yuriy Yekhanurov prime

minister, or acting prime minister?
[Lytvyn] Acting prime minister.

[Kiselyov] So that’s how it is, legally. You are calling for the
reformatting of this temporary acting government?

[Lytvyn] If we find a common compromise, if we develop a joint programme

for activity in this period, what decisions need to be adopted at the
legislative and executive levels, what steps the president proposes to take,
if we introduce some changes to the government, why shouldn’t parliament
with a comprehensive approach adopt a decision on cancellation of this
resolution.

[Passage omitted: Lytvyn criticizes Bezsmertnyy’s proposal that the
president should disband parliament and the Constitutional Court, suggests
that he could face prosecution]

[Kiselyov] Can the president dissolve parliament?
[Lytvyn] He can if he forgets the existence of the constitution and laws.
But it is necessary to think about what happens next.

[Kiselyov] It is not possible according to the constitution?
[Lytvyn] There are no grounds – not even elementary grounds.

[Passage omitted: Lytvyn supposes that proposals for dissolving parliament
were considered; in a TV interview, Yushchenko suggests holding a

referendum on changes to the constitution – UT1, Kiev, in Ukrainian 1920
gmt 13 Jan 06.]
WARNS OF NEGATIVE CONSEQUENCES OF REFERENDUM
[Presenter] So, putting everything in line with legislation, can the
president hold a referendum?

[Lytvyn] Yes, he can. The president has the right to do so. It is envisaged
in the constitution. Three million signatures have to be collected, with at
least 100,000 signatures in each of two thirds of Ukrainian regions. But I
would like to say that a referendum on the constitution can be based only on
three provisions [of the constitution].

The first chapter on general principles; Chapter 3 on elections and
referendums; and Chapter 13, which deals with the procedure for introducing
changes to the constitution. It would be logical to first change Chapter 13
on the procedure for making constitutional amendments and only then carry
out a referendum on the constitution’s content.

But this is not the most important thing. The result of the referendum is
not important. The main thing is who should implement the results of a
referendum. They have to be implemented by parliament.

[Interviewer] So, implementation is needed, just like it was with the 2000
referendum?

[Lytvyn] Former President Leonid Danylovych Kuchma in his time held a
referendum, to be more precise supported a public initiative. But at that
time the results were known beforehand, because there was no possibility of
any other results. Then parliament refused to introduce the changes to the
constitution. I know that many experts then proposed to Leonid Kuchma to
implement the changes by decree. But he refused to take this
anticonstitutional step.

I believe we should not think now about the referendum – this is not a
problem – we should think about what will happen to the country after the
referendum is launched. A referendum on NATO – initiative groups are

working on it now – a referendum on language, and a referendum on the
administrative structure will follow.

Then they will propose a referendum on the special status of certain
territories. I think we will be left without a country if we implement the
results. There will be no Ukraine. I would like to tell every-one – don’t
yield to emotions, but think what can be done for Ukraine.

I am sure that when the Ukrainian president dismissed [Yuliya] Tymoshenko’s
government on 31 September, he made a lawful decision. He had the right to
do this. Although three days earlier he was saying that it was the best and
most successful government ever. Then the president was left on his own.

And parliament supported the president’s actions. I think that today we
should take a consolidated decision.

I would like to reiterate that parliament took a lawful decision. Parliament
correctly assessed the government’s actions in the economic, social and
other sectors. So the decision is lawful.

Assessments could be made from the political viewpoint – how timely it was
or is it good or bad for Ukraine. But I think that everyone should come to
their senses, come back from the election campaign and begin working for
Ukraine, I mean primarily the government.

[Passage omitted: Lytvyn says a referendum cannot be held before the March
election; says there are lots of economic issues for parliament to consider
next week.]
           PRESIDENT SHOULD CHANGE HIS ATTITUDE TO

                              GOVERNMENT, PARLIAMENT
[Presenter] If ministers have to be changed, do you mean the economic bloc?

[Lytvyn] I mean primarily those people who should do their job instead of
giving assessments of everything and everyone. People should show their
professionalism in their office. I have an impression that people who don’t
do anything or know what to do issue orders instead. This is first and
foremost. We should calm down and ensure a working rhythm at all levels of
the authorities.

I would like to say that our heads of state psychologically regard
themselves as presidents of the government. So they are psychologically
linked to the government and cannot objectively assess what is happening
there. This applies to every one of them.

They should instead be above the conflict and critically assess the activity
of the Cabinet of Ministers and parliament. Then it will be an approach that
shows that he is the guarantor of the constitution.

It is unacceptable to side with one of the parties, because – as usual –
this leads to losses. I think the president has an opportunity to do this,
especially in the new legal situation [after political reform came into
force on 1 January].

[Presenter] You are saying that the president is the guarantor of the
constitution. But the guarantor of the constitution now wants to change it.
This is a paradox.

[Lytvyn] The thing is that presidents psychologically feel their
responsibility for the government. On the other hand, they always treated
parliament as a trade union committee, which is responsible for everything
but has no rights or powers. And they cannot put up with the fact that
parliament is playing a different role now, that people will actually play a
different role.

I am not talking about this parliament. It has only a short time left to
work. But the next parliament will come. I think that the president hopes
that the political parties which he so openly supports will be widely
represented in parliament. But they will also have the same position.

As regards the government dismissal – I think everyone understands this and
the president understands this – I think the government dismissal took place
with the silent approval or – if you like – facilitation by the major part
of propresidential and progovernment factions.

When I saw the atmosphere in the session hall and proposed to call a break
and hold a meeting of the conciliatory council and let the prime minister
express his point of view, I saw no willingness among those who should

have grabbed this proposal.

[Presenter] Thank you very much.  -30-
——————————————————————————————–
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]

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4.   UKRAINE’S LEADER SEEKS TO REASSERT HIS POWER
          Over a turbulent political system and a rebellion by parliament

By Tom Warner in Kiev. Financial Times, London, Fri, Jan 14 2006

Viktor Yushchenko, the president of Ukraine, plans fresh constitutional
changes as part of his bid to reassert authority over a turbulent political
system and overcome a rebellion by parliament, which this week voted to

sack his cabinet.

In a Financial Times interview, Mr Yushchenko said he wanted to revise again
Ukraine’s constitution, which was changed on January 1 to reduce his powers
in favour of the parliamentary majority. He proposes that fresh
constitutional changes should be decided through a national referendum after
parliamentary elections in March.

Taking a defiant tone that contrasted with his usually mild demeanour in
interviews, Mr Yushchenko insisted he had not been the least bit weakened by
the vote on Tuesday. His government would disregard the move because it had
not followed constitutional procedure: before sacking the government at
least a third of parliament had to sign a petition calling for the vote, but
that was not done, he said. “So one can say parliament committed a serious
violation of the constitution.”

He claimed the episode would actually help his party, Our Ukraine, gain
support, because supporters of the 2004 Orange Revolution that brought him
to power would turn away from Yulia Tymoshenko, his former prime minister
who joined pro-Russian opposition parties in Tuesday’s vote. He said there
was “no force doing more against” the values of the Orange Revolution than
Ms Tymoshenko, who had “betrayed national interests”.

Defending his own record, Mr Yushchenko predicted his party would take

the lead role in forming the next government after defeating the main
pro-Russian party, Regions, led by his rival in the 2004 presidential
election, Viktor Yanukovich.

The issue of the constitution would then be revisited through a democratic
process, unlike this week’s vote, which he described as “unconstitutional
and illegal”. “That the constitution will have to be defended is an obvious
fact, with the help of the people, with the help of a referendum, with the
mobilisation of all democratic forces,” Mr Yushchenko said.

He said that the Orange Revolution had promoted freedom of speech and

honest political competition. “No one is persecuting anybody, not the state
security service, not the police, not the president, not the prime
minister.”

He added that Ukraine’s economy had come through the Orange Revolution in
reasonable shape with gross domestic product growing at 3 per cent last year
and wages increasing 35 per cent. Foreign investment had increased to $7bn,
compared with a total of $9bn over the previous 14 years.

On the constitutional front, however, Mr Yushchenko appears to be setting
himself up for a tough struggle against his political opponents.

The switch to a more parliamentary system was adopted in December 2004
together with anti-vote-rigging laws that helped Mr Yushchenko win the
presidency.

Whether the president will succeed in changing the constitution and winning
back any of the powers he lost on January 1 will depend largely on his
party’s performance in the March vote.

Two polls released yesterday after the interview on Thursday suggested this
hangs in the balance. Democratic Initiatives, a respected polling group, had
Mr Yanukovich’s Regions party leading with 31 per cent support and close to
a majority together with other pro-Russian parties, while Yulia Tymoshenko’s
bloc had 16 per cent and Mr Yushchenko’s Our Ukraine 13 per cent.
Another poll showed Regions with 23 per cent and Our Ukraine and Ms
Tymoshenko’s bloc with just over 15 per cent each.  -30-
——————————————————————————————–

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5. UKRAINE’S PRESIDENT CALLS FOR A NATIONAL REFERENDUM
                                ON CONSTITUTIONAL REFORMS

By Maria Danilova, Associated Press Worldstream
Kyiv, Ukraine, Saturday, January 14, 2006

KIEV – Ukrainian President Viktor Yushchenko called for a national
referendum on constitutional reforms that significantly expand the
parliament’s powers at the expense of the president.

Yushchenko’s appeal on Friday could deepen the political turmoil in the
ex-Soviet republic, where lawmakers moved to take advantage of their

broader authorities this week by voting to fire the Cabinet over a hike in
the price of gas imports. The government called the parliament measure illegal.

Speaking on national television, Yushchenko said the changes implemented
following the mass protests that brought him to power a year ago “weren’t
made known to the nation, and the nation did not take part in discussing the
essence of these changes.”

“If these changes are so good for the nation, why were they passed in such
a secret (way)?” he said.

The changes give the parliament the right to approve and dismiss the
government, a prerogative previously held by the president.
Yushchenko initially opposed the constitutional reforms, arguing that
Ukraine needs a strong presidency, but he agreed to them as part of
political pact that boosted his support during the Orange Revolution – the
street protests that helped prompt a December 2004 presidential rerun,

which he won.

However, the constitutional reform was enacted only partially pending the
outcome the March parliamentary elections, and some experts said while
lawmakers now could theoretically dismiss the Cabinet, they could not
appoint a new one.

Yushchenko had suggested before that he favored a referendum on the issue,
but said he was making it official with his televised statement. “This must
an official statement. I will definitely come out with this idea so that
there are no doubts,” he said.

Earlier Friday, Prime Minister Yuriy Yekhanurov circulated a statement among
lawmakers insisting that his Cabinet would not accept the vote on its
dismissal, but Parliament Speaker Volodymyr Lytvyn added his voice to
support for the legislators’ call.

Yushchenko accused opposition parties who supported the call to fire the
Cabinet of betraying the country’s national interests and pursuing only
their own personal gains.

“Parliament doesn’t correspond to the political structure of society,”
Yushchenko said. “They (lawmakers) have long lost the support of those

whom one calls voters.”

Yushchenko also defended the gas deal reached with Russia last week
following a bruising public fight over the price of gas. Under the
agreement, the price Ukraine is paying for Russian and Central Asian gas
nearly doubled – a deal opposition lawmakers have condemned as violating

the country’s interests.

But Yushchenko pointed out that the price – US$95 (A78) per 1,000 cubic
meters – was far lower than other European countries were paying. “Ukraine
got the lowest gas prices in Eastern and Central Europe, without ceding
control of our pipeline network,” he said.

Underscoring the need to reduce its energy dependence on Russia, Yushchenko
also said Ukraine should produce its own nuclear fuel. Ukraine now relies on
Russia to enrich uranium for use in its four nuclear power plants, which
account for about half the nation’s electricity production. -30-

————————————————————————————————-
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================      
6.  PARLIAMENTARY-PRESIDENTIAL UKRAINE:
                                  WHAT WILL IT LOOK LIKE?

Vasyl Ivaskiv, Ukrinform, Kyiv, Ukraine, Friday, January 13, 2006

KYIV – The Constitutional Reform will fall short of many of those objectives
which have been set by its architects vis-a-vis missing supportive bills to
specify the Constitutional Reform’s provisions. This was the conclusion,

at which experts with the Legislative Initiatives Laboratory have arrived.

As the Laboratory’s chairperson, Ihor Kohut contends, if the Verkhovna

Rada of Ukraine fails to promptly pass bills on the Cabinet of ministers, on
central executive authority bodies, on making substantial amendments to the
Verkhovna Rada Rules the March 2006 parliamentary elections will probably
be followed by another round of elections this year.

According to Denys Kovryzhenko, superintendent of the Laboratory’s
State-Legal Program Department, the Parliament footdragging on swearing in
Constitutional Court judges is creating a trap for the lawmakers themselves.

If the Head of State ignores amendments to the Constitution, which took
effect on January 1, 2006, the Verkhovna Rada of Ukraine will be unable to
challenge the President’s decrees and directives as the supreme body in
charge of maintaining the nation’s constitutional order, the Constitutional
Court is not functioning.

Commenting on likely scenarios of further developments in Ukraine after the
law on amendments to the Constitution of Ukraine took effect, Ihor Kohut
aired his opinion that the Constitutional Court may invalidate that Law, in
view of numerous procedural violations.

As a matter of fact, before the bill was put to vote on December 8, 2004 its
latest redaction failed to be scrutinized by the Constitutional Court from
the angle of its compatibility with Articles 157 and 158 of the organic law,
following the President’s or 45 VR deputies’ presentation.

In Mr Kohut’s opinion, the future Parliament’s likely political
configuration will not allow the Parliament to timely form a parliamentary
coalition (within 30 days after the new Parliament’s maiden session) or a
new government (within 60 days after the first session).

This will most likely result in the President’s move to dissolve the
Parliament.

If the parliamentary elections result in forming an anti-presidential
majority within the Verkhovna Rada of Ukraine President Viktor

Yushchenko will likely refrain from presenting the coalition-nominated
candidate for the premiership to the Verkhovna Rada, and following 60
days  after the new Parliament’s first plenary session will be entitled to
dissolve the Parliament and appoint new parliamentary elections.

Besides, if the future parliamentary coalition succeeds in forming a new
Cabinet the latter’s activities will likely be paralysed because of its
internal interfactional differences.

So, in all reasonable probability, the new Parliament’s majority will be
fictitious and so unable to effectively support the Government’s activities,
in particular, through passing Government-initiated bills.

Under such circumstances it would be hard, if not altogether impossible,

for the society to determine who is to blame and who bears the
responsibility for the Government’s policies.

As Denys Kovryzhenko believes, even if a new government is formed it

will be unlikely to enjoy wholehearted and unqualified support from all
of the parliamentary coalition’s factions, though this will not automatically
entail the government’s resignation.
The parliamentary coalition’s and the government’s responsibility before
the society will be somehow narrowed, though, because of the President’s
authority in matters of national security, foreign policies, protection of
human rights and civil freedoms.

So, it will be very likely that mutual accusations and shifting
responsibility will exist within the coalition – government – president
triangle.

As Denys Kovryzhenko believes, the Constitutional Reform will allow the
President to influence the Cabinet’s activities through (a) appointing heads
of regional administrations (governors), who are not reportable to the
Government, (b) presidential decrees in matters of security, foreign
policies, protection of citizens’ rights, which cover a vast area, (c)
appointing and relieving the Security Service Chairperson, the Defense and
Foreign Ministers.

These and many other factors, Messrs Kohut and Kovryzhenko contend,

may well frustrate the Constitutional Reform, which will not attain many
of its goals.

As the Laboratory experts believe, the Constitutional Reform fails to give
answers to many important questions, such as the moment when the
parliamentary coalition may be viewed as having formed, the way the
parliamentary coalition is supposed to function, what rights its
component-factions should have, what factions should be viewed as the
parliamentary opposition, and so on.

In view of these and many other similar discrepancies and uncertainties, the
experts contend, the Verkhovna Rada should hasten to pass a package of

bills before the March elections, including the bills on the Cabinet, on the
President, on central executive authority bodies, on the Clearing Chamber,
on the Verkhovna Rada Committees, Special Commissions, on lobbying
activities within the VR, on the Verkhovna Rada Commissioner, on
Ukraine’s administrative-territorial order, on local self-government. -30-
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7.    KIEV IN A SQUEEZE

LEAD EDITORIAL: Financial Times, London, UK, Mon, Jan 16 2006

Victor Yushchenko, Ukraine’s president, is looking increasingly isolated in
his efforts to restore confidence in his country’s fragile democracy. With
the supporters of the Orange Revolution disillusioned and divided, its
enemies are rushing to take advantage. Leading the charge is Moscow,
which longs to overthrow the pro-west president and bring Ukraine back
into Russia’s orbit.

Mr Yushchenko’s main difficulty is that, under the deal that saw his
predecessor Leonid Kuchma surrender office peacefully just over a year
ago, power is being transferred from the presidency to parliament. In
theory this should strengthen Ukrainian democracy by reducing the
possibility of a future president establishing a Kuchma-style authoritarian
regime.

In practice, the reform is moving power from Mr Yushchenko – the one man
who was able to rally Ukraine’s democratic forces – to an assembly riddled
by corruption and self-interest and easily exploited by the Kremlin. With
parliamentary elections due in March, deputies are more concerned about
saving their seats than saving the country.

It comes as no surprise that Mr Yushchenko’s opponents in the Orange
Revolution and their supporters in the Kremlin are seeking revenge. Victor
Yanukovich, the defeated challenger in the disputed presidential election,
tasted power as Mr Kuchma’s prime minister and wants more.

Russian president Vladimir Putin disdains the freedoms that Mr Yushchenko
represents. The recent attempt to put pressure on Kiev in the gas dispute
showed Russia was ready to sacrifice other interests – such as the trust of
its European gas clients – to punish Ukraine.

The real shock of the last year lies in the failure of Mr Yushchenko and his
former ally Yulia Tymoshenko to capitalise on the Orange Revolution. It is
true, as Mr Yushchenko argues, that Ukraine has been transformed by the
advance of liberty. The fear of the secret police has gone. But the split
between Mr Yushchenko and Ms Tymoshenko, who was sacked last
summer as prime minister, has stymied efforts to advance reforms.

It is of vital importance to the European Union that Ukraine remains a
functioning democracy in which the influence of the authoritarians in the
Kremlin is kept to a minimum. Russia, as a powerful neighbour, has
legitimate interests in Ukraine. But it should pursue them without
undermining Ukrainian sovereignty.

The EU should last year have replied more warmly to Mr Yushchenko’s
overtures. If it could not have offered the promise of future membership,
it could at least have hinted at the possibility. But even a glowing EU
response would have made little difference to Mr Yushchenko.

Ukrainian democracy must be built mainly by Ukrainians themselves. Just
as they won the Orange Revolution largely by their own efforts, so they
must now safeguard its legacy.
  -30-
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8.     “WHAT’S GAS GOT TO DO WITH IT?”
               Gas deal was only a pretext for sacking Ukrainian cabinet

ANALYSIS & COMMENTARY: By Olha Len
Glavred, Kiev, Ukraine, in Russian, Tuesday, Jan 10, 2006
BBC Monitoring Service, UK, in English, Saturday, Jan 14, 2006

The Ukrainian-Russian gas contract recently debated in the Ukrainian
parliament was no more than a pretext for securing the government’s
dismissal, Olha Len has suggested. The contract remains in force and the
sacked government will continue in office until well after the parliamentary
election in March, she said. Though the same people will continue to

conduct gas negotiations, their positions will now be significantly weaker,
Len concluded.

The following is the text of the article, posted on the Ukrainian website
Glavred on 10 January, under the title “What’s gas got to do with it?”:
subheadings have been inserted editorially:

Now we know what it is like to live in a parliamentary-presidential
republic. The prime minister calls in at parliament first thing in the
morning to talk about a gas contract, and, in the evening, he comes out as
something indeterminate – either as an acting PM or, as Justice Minister
Serhiy Holovatyy termed it with striking originality, as “the prime minister
in retirement”.

In other words, we go to work as the whole Cabinet of Ministers for at least
another three months, but we can no longer set foot in parliament.
                        SPEAKER SEALS GOVERNMENT’S FATE
As one of the MPs who spoke on Tuesday [10 January] observed, “even if

a gas price of 40 dollars had been agreed with [the Russian gas monopoly]
Gazprom, there would still today be a demand for the government’s
resignation”. The USDPU [United Social Democratic Party of Ukraine],
the Regions of Ukraine and the CPU [Communist Party of Ukraine] had set
that firmly in their sights.

The faction of the Yuliya Tymoshenko Bloc [YTB] was originally prepared to
settle for the resignation of Fuel and Energy Minister Ivan Plachkov and
[the national oil and gas company] Naftohaz Ukrayiny chief Oleksiy Ivchenko.

But the outcome was decided by the position of speaker Volodymyr Lytvyn
and by his two factions, as has recently become the tradition in Ukraine’s
Supreme Council [parliament].

In the morning, Mr Lytvyn was still in doubt, apparently thinking that
“parliament would not call for resignations”. Towards evening, his voice
gained strength, and the decision came to fruition. Of course, the speaker
himself did not demand any dismissals. But everything became clear after his
learned discussion with [Socialist Party (SPU) leader] Oleksandr Moroz about
how the constitution was to be interpreted.

Mr Moroz tried to play the peacemaker. He, evidently, remembered that there
are also SPU members in the cabinet. The Socialists even tabled their own
version of a resolution suggesting that the government should itself
determine whether to dismiss someone and that, as far as Naftohaz Ukrayiny
was concerned, all that was needed was to set up a supervisory council
consisting of particularly trusted MPs.

To make it even more convincing, Oleksandr Moroz endeavoured to intimidate
the MPs with [the prospect of] dissolution. He recalled that constitutional
reform had taken effect on 1 January 2006 and that parliament could now
dismiss the Cabinet of Ministers, but the provision whereby it could appoint
a new government would come into force only after the parliamentary
elections on 26 March.

“This means that it will not be possible to form a Cabinet of Ministers for
two months, and the president has full grounds, on the basis of the
constitution, for dissolving parliament,” Moroz concluded.

But Volodymyr Lytvyn did not allow the MPs to be diverted from the true
path, and he firmly dotted all the i’s. “I want to reassure you,” he said
and quoted Article 90 of the constitution, which says that the president
cannot dissolve parliament six months before elections. “I would ask you not
to manipulate the constitution,” the speaker urged sternly.
YEKHANUROV DID EVERYTHING TO BRING ABOUT HIS DISMISSAL
After that, the government no longer had any hope of avoiding dismissal.
[Prime Minister] Yuriy Yekhanurov also did everything possible to bring
about his own dismissal. If his speech convinced anyone of anything, it was
only that the government had a lot to hide over the gas contract.

He said many warm words about the move away from barter deals in gas
trading, about Ukraine’s good reputation in Europe and about the need to
switch over to market-based cooperation. But what is suitable for a speech
at a rally of one’s supporters is not very convincing in a bloody-minded
parliament.

It emerged eventually that the government attached no importance to any
RosUkrEnergo [intermediary company that Gazprom insisted in recent
negotiations would be the sole supplier of gas to Ukraine] and had no
interest whatsoever in how many times, or at what price, gas would be resold
before it reached our border.

Furthermore, the terms for the transit and supply of gas for the whole year
would only be made clear in a 2006 protocol to the agreement between the
governments of Ukraine and Russia of 4 October 2001. No specific
calculations or arguments were produced.

But what seems to me to be the main thing is that the prime minister was
unable to answer the crucial question of why the transit price was fixed for
five years in advance, while the gas price of 95 dollars per 1,000 cu.m.
applied only to the first half of this year.

Moreover, his explanation led one directly to suppose that the price would
certainly be higher in the second half, but the government did not have the
faintest idea about exactly how much higher it would be. According to
Yekhanurov, in the first half-year, Ukraine will be receiving Turkmen gas at
50 dollars per 1,000 cu.m. on the Turkmen-Uzbek border, but it may be at 80
dollars on the Ukrainian border.

RosUkrEnergo balances something there with something else and receives 95
dollars. From the second half-year onwards, gas will be traded at 60 dollars
on the Turkmen-Uzbek border. So it is still a mystery how much it will cost
on the Ukrainian border after RosUkrEnergo’s manipulations.
GAS CONTRACT ONLY PRETEXT FOR SACKING GOVERNMENT
Even so, the gas contract was only a pretext for the dismissal. Parliament
did not actually annul the contract. The MPs could only set up an interim
commission of inquiry to look into Naftohaz Ukrayiny. The YTB and United
Ukraine factions wanted to try for a resolution repudiating the gas
agreement and to force the prosecutor-general to provide a legal appraisal
of it, but they were stopped by Volodymyr Lytvyn.

He did not even put those proposals to a vote, since the contract is an
internal matter for economic entities and the Supreme Council cannot
intervene in it. The outcome was a complete nonsense. The contract the MPs
had ostensibly gathered to discuss remains in force. The government is sort
of dismissed, yet continues to function until the elections. Bearing in mind
the lengthy interventions of the speaker, it may function for far longer.

Thus, the people who conducted the gas negotiations are still conducting
them, but their position now is much weaker. Whoever says anything, if he
has only acting status and lacks support in parliament, it is hard to show
resolve when sticking up for national interests.

In fact, no one seriously wanted to remove the government. [The first deputy
head of opposition United Social Democratic Party] Nestor Shufrych puts into
words what the opposition has in mind: “There is no collapse, since the
government will operate for a further 60 days, but will not be able to take
any decisions.”

Soon a new publicity slogan will make its appearance: [in Ukrainian] “Your
government is sacked, Mr President!” So the age of the great talkers but
little doers has dawned.  -30-
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9. UKRAINE PRESIDENT DEFENDS GAS DEAL WITH RUSSIA 

Associated Press (AP), Kiev, Ukraine, Saturday, January 14, 2006

KIEV – Ukraine’s president on Saturday defended a contentious gas deal with
Russia and reiterated that the government would stay in office until March
parliamentary elections despite lawmakers’ vote to dismiss it.

Viktor Yushchenko said his country’s energy relations with Russia became
more efficient after a bruising public fight over the price of gas that
ended in a deal last week. Under the agreement, the price Ukraine is paying
for Russian and Central Asian gas nearly doubled.

“Our relations with Russia on the gas issue became more predictable,
efficient and economically grounded,” he said in his regular radio address
to the nation.

Parliament this week voted to fire the Cabinet over the hike in the price of
gas imports, as Yushchenko’s opponents – including Former Prime Minister
Yulia Tymoshenko – united in saying the deal violated the country’s
interests.

Yushchenko called the vote “illegal” and reiterated that Ukraine’s
government would continue to operate until a new Cabinet is appointed after
the March 26 vote.

He called the gas dispute a “difficult exam on political maturity” and
warned that “we faced the threat of losing sovereignty, economic
independence and freedom.”

Yushchenko pointed out that the price – $95 per 1,000 cubic meters – was

30% lower than what other former Soviet bloc countries were paying. The
outcome of the energy crisis “demonstrated that Ukraine can defend its
national interests,” Yushchenko said.

The compromise was reached only after Russia briefly cut off gas supplies to
Ukraine, whose pipeline network pumps most of the gas Russia exports to
Europe. The cutoff also resulted in reductions to Europe.

Tymoshenko, whose firing in September marked a split in the coalition of
opposition leaders that came to power in Ukraine’s Orange Revolution last
year, renewed her call to annul the gas agreement.

“It was not a gas agreement, it was a shameful deal against Ukraine’s
independence, welfare, dignity and its possibility to carry out an
independent policy in the world,” she said in an interview with the private
Kiev television and radio company later Saturday. -30-
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10. PRESIDENT VIKTOR YUSHCHENKO STATES READINESS TO
            BE RESPONSIBLE FOR EVERY ITEM OF UKRAINIAN –
                                RUSSIAN GAS AGREEMENT

Oleksandr Khorolskyi, Ukrinform, Kyiv, Ukraine, Thu, January 12, 2006

KYIV – President Viktor Yushchenko stated readiness to be responsible for
all items of the gas protocol, signed between Ukraine and Russia in Moscow
on January 4. Such a readiness he aired at a Thursday Govt special session.

By way of characterizing the gas agreement, Viktor Yushchenko stressed first
ever for 15 years Ukraine was negotiating with Russia as an equal partner
and stood for its national interests. “We have all grounds to be proud of
the work Ukraine has done both at the political and professional level”, he
said.  -30-
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========================================================

11. UKRAINE PRESIDENT SAYS POLITICS BEHIND RUMOURS OF
SHADY INDIVIDUALS BEHIND RUSSIAN GAS FIRM ROSUKRENERGO

UT1, Kiev, Ukraine, in Ukrainian 1921 gmt 13 Jan 06
BBC Monitoring Service, UK, in English, Friday, Jan 13, 2006

Ukrainian President Viktor Yushchenko has said that there is no evidence to
confirm that some shady individuals are behind the Rosukrenergo gas
intermediary which will supply Turkmen gas to Ukraine in accordance with
the 4 January gas deal signed with Russia.

Speaking in a televized interview broadcast by several major Ukrainian TV
channels on 13 January, Yushchenko said that a certain Ukrainian politician
has been spreading unconfirmed rumours about Rosukrenergo to squeeze it
from the Ukrainian gas market.

Yushchenko said: “Some people who are grand ladies have named to me four
individuals who are behind that company. I suggested saying this in public
and presenting evidence. It so happened that this has not been done for
almost a year now.”

Yushchenko went on to say that the rumour compromising Rosukrenergo
was aimed at replacing it with another company which would finance that
politician’s election campaign ahead of the March 2006 parliamentary polls.

“I am certain that this rumour has been launched for one reason – to bring
in the structure you are interested in, you need to compromise the structure
which is currently involved in these operations. Everything has started with
fables about Rosukrenergo.

“I reiterate that this has been a hook for the sake of one thing – to bring
in one of the companies which could finance the party of one political force
ahead of the election,” Yushchenko said. (The interview lasted for about 25
minutes and will be processed as an excerpt by 1200gmt on 14 January.)
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========================================================
12. PRES REMARKS ON ROSUKRENERGO DO NOT HOLD WATER

LETTER TO THE EDITOR: From Roman Kupchinsky
Investigative Journalist, Prague, Czech Republic
RE ARTICLE: Ukraine President Says Politics Behind Rumours
of Shady Individuals Behind Russian Gas Firm Rosukrenergo
UT1, Kiev, Ukraine, in Ukrainian 1921 gmt 13 Jan 06
BBC Monitoring Service, UK, in English, Friday, Jan 13, 2006
Letter published by The Action Ukraine Report (AUR), #642, Article 12
Washington, D.C. Monday, January 16, 2006

Yushchenko was talking about Itera and Yulia Tymoshenko’s alleged
attempts to replace RosUkrEnergo with this Russian company as the
middleman. As far as I know, there might have been attempts to do so
by Yulia but it is clear that Russia would not go along with this scenario
since Putin and Gazprom’s Miller set out to destroy Itera in 2003 as part
of their drive to close down all of Gazprom’s competitors in the gas
business in Russia.

Yushchenko’s other remarks about RosUkrEnergo (RUE) just do not hold
water and are deliberately misleading. RosUkr was formed by Kuchma and
Putin together in July 2004 as a replacement for Eural Trans Gas, a company
which had been widely exposed in the press as a front company for murky
individuals.

During the formation of RUE both sides agreed to create a structure which
would allow the old scheme to continue and for this reason  Raiffeisen
Investment was brought into the deal. Raiffeisen established

Centragas Holdings where two individuals, David Brown and Howard
Wilson, linked closely to Eural, received a power of attorney to conduct
business for the “unnamed Ukrainian investors” whose interests were
represented by Raiffeisen Investments.

Then RUE hired Robert Shetler Jones, another person linked to Eural and
other dubious schemes and individuals to be a consultant. The crux of the
matter is in the unnamed investors.

Instead of demanding that Tymoshenko name them, Yushchenko should
demand that Putin name them or that Raiffeisen Investments come clean and
open its books to show who they are, how much money went into their
accounts, and follow the money trail to its final resting place.

It does not befit the president of Ukraine to be a lobbyist for a company
which he himself knows little about. It was a cheap shot and does not
serve the interests of Ukraine.
  -30-
——————————————————————————————–
NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
for RFE/RL Online and the editor of “RFE/RL Organized Crime and
Terrorism Watch.” He was director of the RFE/RL Ukrainian Service

for 10 years. Contact: KupchinskyR@rferl.org
 ——————————————————————————————-
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13. PRESIDENT YUSHCHENKO SWEARS BY RUSSIAN GAS DEAL
                  WHILE PM YEKHANUROV SPILLS THE BEANS
           Yekhanurov shines light on murky aspects of Russian gas deal

ANALYSIS & COMMENTARY: By Vladimir Socor
Eurasia Daily Monitor (EDM), Volume 3, Issue 9
Jamestown Foundation: Wash, D.C., Friday, Jan 13, 2006

Ukrainian President Viktor Yushchenko is risking his political credibility
by blindly defending the Russian-Ukrainian gas deal despite severe criticism
of it by Western and Ukrainian experts and a majority of the Ukrainian
parliament. Rather than addressing the agreement on its merits
, Yushchenko
ignores Western critics (some of the most prominent of whom are Orange
sympathizers) and imputes political partisan motives to internal critics
(whose affiliations range from the leftist opposition to the core
pro-democracy community).

Yushchenko’s stance seems to reflect his quest for accommodation with a
suddenly responsive Kremlin in the run-up to the March parliamentary
elections in Ukraine. Meanwhile, even Prime Minister Yuriy Yekhanurov and
other Ukrainian officials admit to the January 4 agreement’s flaws and seem
even to be distancing themselves from parts of the deal.

During his joint news conference with Russian President Vladimir Putin on
January 11 in Astana, Yushchenko described the gas deal as a “wonderful
result [that] was reached on the basis of market principles.” He professed
to be “convinced that the agreement was drafted professionally [as] a sound
compromise, politically, and economically,” and that he was “aware of every
provision.”

Along with the government, Yushchenko had assured the nation that the
discounted price of $95 per 1,000 cubic meters supplied to Ukraine would
apply for the five years of the agreement’s duration, whereas it actually
applies for the first six months of that period.

Yushchenko did not react when Putin told their joint conference that the
price on the Russian component of those supplies would (after the first six
months) vary in accordance with “market prices.” Moreover, Turkmenistan
has already signaled its intention to demand a higher price next year for
the Turkmen component of gas supplies to Ukraine.

In Kyiv on the sidelines of the cabinet of ministers’ January 12 emergency
meeting, Yushchenko again told the press, “I am ready to answer for every
point of the agreement that was signed” (UNIAN, January 12). However, he
is not addressing the agreement’s merits, nor taking notice of the critics
who do.

In contrast to the president, Yekhanurov now acknowledges that Kyiv has

been blackmailed into signing, and that the agreement is not binding after all.
While defending the government’s decision to sign it on January 4 regardless
of the flaws, Yekhanurov has begun unveiling some of the agreement’s murky
aspects.

In a televised interview he recounted some moments of the negotiations in
Moscow: “The whole of the pipeline from the Turkmen-Uzbek to the
Russian-Ukrainian border is filled by Gazprom’s contractor RosUkrEnergo.
We were offered a choice: either this, or [sarcastically] ship gas by train.
Thus, we had no choice.”

Until now, Yekhanurov and the government professed to be totally agnostic
about RosUkrEnergo’s identity, refusing even to ask questions as long as
that company “guaranteed” the $95 price for five years. The government’s
dissembling on both counts was the main trigger of the parliament’s January
11 vote of no confidence.

Now, the government admits that the $95 price is only valid for six months
and is beginning to raise questions about RosUkrEnergo. According to
Yekhanurov “We will officially put the questions [who are RosUkrEnergo’s
owners] to the Russian side; but I know that if we want to have gas, we have
one company to choose from. Or we can opt to not receive gas.”

According to Yekhanurov now, “Ukrainian interests are not represented” in
RosUkrEnergo, there is has “no one there from the Ukrainian side.” The

“Ukr” part in the company’s name, he said, dates to 2004 when the Kuchma
administration and Moscow envisaged forming a Russian-Ukrainian company,
but the company remained a Russian one after the change of power in Ukraine.

After signing the January 4 agreement, the Ukrainian government referred to
RosUkrEnergo as a joint company in an apparent attempt to suggest that
Ukraine’s interests would be represented there. This turns out not to be the
case. Thus, the proposed joint venture of Naftohaz Ukrainy and
RosUkrEnergo to market gas in Ukraine would not be predominantly
Ukrainian as hitherto assumed.

Moreover, Yekhanurov now describes the January 4 agreement as merely
a “protocol,” a “road map,” one that “has no consequences, fines or
whatever” — i.e., not binding. Asked whether “this means that the sides
[shall] follow the agreements signed previously” [i.e., in 2002 and
thereafter for the period through 2009], Yekhanurov answered: “Certainly.
And there are about 20 documents inter-state and inter-governmental
documents and some contracts.”

This assertion refers to the period during which Kyiv, Moscow, and
RosUkrEnergo will be negotiating the actual contracts on the volumes
and prices of gas supplies and transit services. In sum, it appears that the
issue remains in a legal vacuum and subject to political decisions by a
strong-armed Kremlin and a vulnerable Yushchenko administration.
——————————————————————————————
(Interfax-Ukraine, UNIAN, Channel Five TV [Kyiv], January 11, 12;
see EDM, January 12)  (http://www.jamestown.org)
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14. UKRAINIAN LAWMAKERS ASK PRES FOR MORE INFORMATION
     ON MIDDLEMAN ROSUKRENERGO IN GAS DEAL WITH RUSSIA

Maria Danilova, AP Worldstream, Kiev, Ukraine, Friday, Jan 13, 2006

KIEV – Ukrainian lawmakers on Friday requested more information from

the president on a trading company that will act as a middleman in imports
of Russian natural gas to Ukraine in order examine its alleged ties with a
reputed organized crime figure.

The move was part of parliament’s continuing protest over a deal with

Russia that resulted in nearly doubling the price Ukraine pays for gas
imports. Lawmakers voted on Tuesday to dismiss the government – a
move rejected by the government as illegal.

Prime Minister Yuriy Yekhanurov circulated a statement among lawmakers
Friday insisting that his Cabinet would not accept the vote, but Parliament
Speaker Volodymyr Lytvyn on Friday voiced support for the legislators’ call.

President Viktor Yushchenko had urged parliament to rescind its initiative
and Lytvyn said lawmakers would consider the president’s request if it is
submitted correctly. However, he predicted parliament would not change its
mind.

Under the complex gas deal, which was signed last week following a bitter
public fight over prices, Russia’s state-controlled monopoly Gazprom will
sell gas to a Swiss-registered trading company, RosUkrEnergo, for US$230
(A195) per 1,000 cubic meters. Ukraine’s Naftogaz will buy gas from
RosUkrEnergo for US$95 (A80).

RosUkrEnergo was created in 2004 to replace another gas provider,
Euraltransgas, with the aim of acting as an intermediary between Gazprom

and Naftogaz to transit gas from the Central Asian country of Turkmenistan
through Russia into Ukraine. It can give Ukraine a lower price because it
factors in cheaper gas from Turkmenistan and other Central Asian nations.

Gazprom, through its Swiss-registered Arosgas Holding AG, owns 50 percent

of RosUkrEnergo. The remaining half is owned by Centragas Holding, an
Austrian-registered company 100 percent owned by Raiffeisen Invest AG.
Yekhanurov has said despite its name, the firm has no Ukrainian owners.

The firm has a murky reputation. Last summer, Ukraine’s State Security
agency was investigating links between Naftogaz, RosUkrEnergo and groups
allegedly affiliated with Semyon Mogilevich, a Ukrainian-born Russian
citizen and reputed organized crime figure who is wanted by the FBI.

In an interview with The Associated Press on Thursday, Yekhanurov said his
government had no reason to mistrust RosUkrEnergo. “The firm has been
working for a long time already. The most important thing is that gas is
flowing.”

Meanwhile, the party of former Primer Minister Yulia Tymoshenko on Friday
renewed its calls to seek an all-out annulment of the controversial gas
agreement, saying the deal betrayed the country’s national interests.

Yekhanurov, however, has vowed that in spite of the crisis the agreement
would be formalized by an intergovernmental agreement with Russia in late
January or early February.

Reflecting Kiev’s unease with its reliance on Russian energy supplies, Fuel
and Energy Minister Ivan Plachkov said Ukraine – site of the deadly
Chernobyl disaster in 1986 – would seek to increase the use of nuclear
energy.  -30-
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15.  UKRAINIAN PARLIAMENT DEMANDS ROSUKRENERGO AUDIT
      Russian Duma also orders information about owners of RosUkrEnergo

RIA Novosti, Moscow, Russia, Friday, January 13, 2006

KIEV – Ukraine’s parliament asked the president Friday to launch an audit
of RosUkrEnergo, a Swiss-based company that transports Central Asian
natural gas to Ukraine via Russia. Similar requests were sent to the
Prosecutor General’s Office, the Security Service and the Interior Ministry.

The initiative, proposed by Hryhoriy Omelchenko, head of the Supreme
Rada’s committee on fighting crime and corruption, was supported by
288 out of 401 Rada members present at the meeting.

The parliament, which announced Friday that it had extended its session for
a week, also inquired about the company’s founders and investors, and the
circumstances in which a gas agreement was drawn up between and Ukraine’s
state-owned gas firm Naftogaz. RosUkrEnergo is owned half by Russian
energy giant Gazprom and the other half is held by Austria’s Raiffeisen
Bank.

Under the new gas deal reached with the Russian company, Gazprom will
sell Central Asian gas to RosUkrEnergo, an intermediary that will then sell
gas to another joint venture in Ukraine, to be set up by RosUkrEnergo and
Naftogaz.

The deal signed earlier this month ended the long-running dispute between
Ukraine and Russia, which cut off gas supplies to the country for a few
days in January.

The State Duma, the Russian lower house of parliament, also ordered
information on the owners of RosUkrEnergo from its property committee
Friday. -30-
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LINK: http://en.rian.ru/world/20060113/42994954.html
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16.  CORRUPTION, EURO-STYLE
   A shadowy middleman company called RosUkrEnergo will buy the gas
    from Russia at the price Moscow wants, mix it with cheaper gas from
   Turkmenistan and sell it to Ukraine for double the price it is now paying.

     Gazprom also owns 51 percent of RosUkrEnergo, the Ukraine’s new
      mystery supplier. Who owns the other shares remains a myster
y.

COMMENTARY: By John Hall, Media General News Service
Scripps Howard News Service, Wash, D.C., Fri, January 13, 2006

WASHINGTON — If there isn’t enough corruption in Washington to suit

you, sniff the deal to end the Russian “gas war” in Europe. The Ukrainian
gas pipeline deal has the odor about it of Russian monopoly money.

This story began in a revolving door. Former German Chancellor Gerhard
Schroeder, less than four weeks out of office, went to work for a pipeline
consortium controlled by the giant state-owned Russian energy group,
Gazprom.

Now, there are rumors that Schroeder has attempted to mediate a dispute
between Russia and Ukraine over four-fold price increases Russia imposed

on Ukraine at the start of the winter. Russia cut off the pipe Jan. 1 when
Ukraine refused to pay, also temporarily cutting off supplies to European
countries to its west.

The pipeline has now been reopened under a Gazprom-led deal hammered

out by Ukrainian President Viktor Yushchenko and Russian President
Vladimir Putin.

According to the Russian news agency Itar-Tass, the new deal works like
this: A shadowy middleman company called RosUkrEnergo will buy the gas

from Russia at the price Moscow wants, mix it with cheaper gas from
Turkmenistan and sell it to Ukraine for double the price it is now paying.

Why doesn’t Ukraine buy it directly from Turkmenistan? Because Russia
controls all the existing pipelines into Ukraine, Georgia and other land
bridges to Europe. Isn’t that wonderful?

Russia and its energy monopoly, Gazprom, have a natural gas stranglehold on
Europe – exactly what American commanders warned would happen during the
Cold War when the European Union first began talking pipeline deals with
Moscow. Natural gas is now mainly an economic question, not a security
question, for Europe. But the old factors of Kremlin intimidation and
bullying against competitors still are present.

After his deal with Putin was announced, a howl went up from Yushchenko’s
political opponents in Kiev, where parliament quickly voted to sack the
Cabinet. His former prime minister, Yulia Tymoshenko, has charged the secret
pact was evidence of corruption in Yushchenko’s government. Ironically, she
said the plot was only exposed because of the Orange Revolution that both
she and he had brought about against a pro-Russian regime.

Now, she said, he has betrayed the revolution and begun operating in the
shadows, making an energy deal with Putin, who has brought the energy
sector piece-by-piece back under state ownership without blinking an eye.

Since the Cabinet can’t be replaced this close to the March election, the
no-confidence vote appears to be mostly Ukrainian political theater.

It is hard to tell who has betrayed whom in Kiev. Yushchenko, after all, was
mercilessly poisoned several years ago with a substance that altered his
facial features.

The assumption always has been that the Kremlin’s KGB did the job

because Yushchenko was attempting to oust a pro-Russia regime in Kiev.
Now he’s making deals with Moscow. Evidently, he holds no grudges.

Der Spiegel, the German publication, quoted associates of Germany’s
Schroeder as saying that he called both Yushchenko and Putin to help put
together the deal that broke the deadlock between the two countries.

No one seems to be praising Schroeder as a peacemaker. Actually, he

seemed to be an embarrassment to Germany just as his successor, Angela
Merkel, came here for weekend talks with President Bush, whom Schroeder
had so roundly criticized.

It was shocking for many Germans and Europeans to see Schroeder become

part of Gazprom, a statist organization synonymous with de-privatization, so
soon after leaving office. Opposition Free Democrats have since called for a
new honor code for German politicians.

Others have raised conflict of interest questions concerning whether
Schroeder may have taken actions while in office on behalf of a future
employer. The pipeline company he will work for – connecting Russia with
Germany under the Baltic Sea – was one he had advocated while in office.

Two German companies, BASF and E.ON Ruhrgas, have a 49 percent stake
in the Russian-German pipeline, according to the German Press Agency, and
Gazprom owns the rest.

Gazprom also owns 51 percent of RosUkrEnergo, the Ukraine’s new mystery
supplier. Who owns the other shares remains a mystery.

All will increase Europe’s dependency on Russian gas. -30-
———————————————————————————————-
John Hall is the senior Washington correspondent of Media General

News Service. E-mail jhall@mediageneral.com. Distributed by Scripps
Howard News Service, http://www.shns.com. )
http://www.shns.com/shns/g_index2.cfm?action=detail&pk=HALL-01-13-06
——————————————————————————————-
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17. GAZPROM TO TAKE DIRECT PART IN ROSUKRENERGO
                       A foreign bank represents Ukraine’s interests
Better Gazprom and Naftogaz Ukrainy be co-founders of the joint venture

ITAR-TASS, Moscow, Russia, January 15, 2006

VLADIVOSTOK – Gazprom will take direct part in the RosUkrEnergo joint
venture with Ukraine that sells Russian natural gas, Gazprom CEO Alexei
Miller said in the Vesti Nedeli program of the Rossiya television channel on
Sunday.

“The joint venture between Russia and Ukraine should be absolutely
transparent. Gazprombank, a 100% subsidiary of Gazprom, represents

Russia in the joint venture, and its activities are absolutely clear and
transparent.

Meanwhile, a foreign bank represents Ukraine. Russia has said many times
that it would be better to make Gazprom and Naftogaz Ukrainy the co-

founders of the joint venture,” Miller said.

“A response of Ukraine is yet unknown, but Russia has decided that Gazprom
will take direct part in the joint venture. Bearing in mind the size of the
deal and its public significance, it would be logical for Ukraine to give a
positive answer and be represented by Naftogaz Ukrainy state company rather
than a foreign bank,” Miller said. He thinks they may receive a reply within
days.

Russian gas prices for Ukraine may vary depending on market conditions

and petroleum product prices, Miller said.

“The current gas price for Ukraine is $230 per 1,000 cubic meters. Bearing
in mind the shift to market terms, gas prices for Ukraine may increase or go
down. This is market. The gas price is linked to prices on petroleum
products and crude oil. So, Russian gas prices on the Ukrainian market may
fluctuate,” he said.

Gazprom is shifting market terms “with all the former Soviet republics that
import Russian gas, and the European market is the sole determinant of gas
prices,” he said.

“The shift to market terms also implies monetary settlements and the end to
non-transparent barter deals,” Miller said.
——————————————————————————————-
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18. RUSSIA’S GAZPROM CHIEF TALKS ABOUT ENERGY

                             DEALS WITH UKRAINE, GERMANY
       The structure of the Russian-Ukrainian joint venture, Rosukrenergo,
       must become absolutely transparent. As for the Ukrainian side, in
       this joint venture it is represented by a foreign bank. Russia has
       many times raised the question that it would be right if the founders
       were Gazprom and Ukraine’s Naftohaz.
INTERVIEW: With Aleksey Miller, Head of Gazprom
BY: Sergey Brilev, Presenter of Vesti Nedeli programme
RTR Russia TV, Moscow, in Russian 1700 gmt 15 Jan 06
BBC Monitoring Service, UK, in English, Sunday, Jan 15, 06

[Presenter of Vesti Nedeli programme Sergey Brilev] Now for the guest we
announced earlier, the main guest of Vesti Nedeli, head of Gazprom Aleksey
Miller. Aleksey Borisovich, welcome to our programme. Let me say a few
explanatory words about what happened in Astana.

President Putin said a wonderful thing at a news conference with [Ukrainian
President Viktor] Yushchenko that the price [of gas] for Ukraine could be
higher or lower. Still, what will the fluctuation range be and which way
will the prices go?

[Miller] The price of Russian gas which we deliver to Ukraine is 230 dollars
per 1,000 cu.m., and no doubt, taking into account the fact that we have
moved to market principles in relations with Ukraine, the price can go up or
down. This is the market. Gas prices on the gas market are pegged to oil
products and oil prices.
If the price for oil and oil products goes up, consequently gas prices go
up. If [oil] prices go down, consequently [gas] prices go down. So the price
for Russian gas on Ukraine’s market can be higher or lower for some period.
The market will sort out everything.

[Brilev] Will this logic be applied to other countries of the former Soviet
Union, many of which enjoyed similar unnaturally, I would say, privileged
relations with the Russian gas industry all these years?
[Miller] Gazprom is moving to market principles with all republics of the
former USSR which import Russian gas – absolutely all without exception.
Only the market, the European market, will determine gas prices. All are
equal on the market. The move to market principles is also a move to money
payments and a complete ban on non-transparent barter deals.

[Brilev] The word non-transparent is the key word in this story because
there are a lot of journalists in Russia and Ukraine who are speaking about
the non-transparency of the Rosukrenergo company, which is now buying

your gas and selling it to the Ukrainians. Gazprombank is the founder from
the Russian side and a foreign bank, not Ukrainian, is the founder from the
Ukrainian side. Are you satisfied with this arrangement?
[Miller] The structure of the Russian-Ukrainian joint venture, Rosukrenergo,
must become absolutely transparent. In line with the agreement which was
signed in early January between Gazprom and Ukraine’s Naftohaz –

[Brilev, interrupting] In the early hours of 4 January.
[Miller] Yes, in the early hours of 4 January, very early hours. This joint
venture is defined as the only importer of both Russian and Central Asian
gas to Ukraine.
From the Russian side, Gazprombank, a 100-per-cent subsidiary of

Gazprom, is taking part in this. From the Russian side, as regards the
structure of property, the picture is absolutely clear and transparent.

As for the Ukrainian side, in this joint venture it is represented by a
foreign bank. Russia has many times raised the question that it would be
right if the founders were Gazprom and Ukraine’s Naftohaz. The last time

our president put this question to the Ukrainian president was at a meeting
in Astana literally a few days ago.
We don’t know what answer the Ukrainian side will give us but the Russian
side made the decision that Gazprom will be directly involved in this joint
venture.
Taking into account the scale of the deal and its public importance, it
would be logical, it seems, if Ukraine gives a positive answer and decides
that the Ukrainian side is represented not by a foreign bank but by the
state company, Ukraine’s Naftohaz.

[Brilev] Do you expect an answer soon, in a few hours or days, or maybe
something will be said during [Ukrainian Prime Minister Yuriy] Yekhanurov’s
visit to Moscow?
[Miller] Maybe.

[Brilev] Probably the last thing – [changes tack] Many people are just
returning from their New Year holidays tonight, tomorrow they are going to
work. However, a sort of working week has formally already begun and trading
in Gazprom shares has started in line with completely new rules this week.
The growth is such that I personally was upset that I did not buy Gazprom
shares in December. How do you assess these first days of work in accordance
with new rules?
[Miller] You know, we expected this result. Several years ago Gazprom set
itself the task of becoming a global energy company. What we see today on
the shares market is the proof that Gazprom is becoming such a company de
facto. The company’s capitalization topped 200bn dollars. This is a
historical milestone for both our country and Gazprom.
The company now ranks 4th in the list of major oil and gas world companies.
I can tell you that we are within a whisker of 2nd or 3rd place.

[Brilev] You mean that in front of you are only the Americans and the
Anglo-Dutch group BP-Shell? [Preceding sentence as spoken; at end of
programme Brilev corrected himself, giving following listing for top four
oil and gas companies – US Exxon-Mobil, Anglo-Dutch Shell, Anglo-US BP,

then Russia’s Gazprom.]
[Miller] Yes, yes, we are slightly behind BP and Shell. I think this is a
temporary thing. Speaking about major world companies, Gazprom is in
the top 10 biggest companies and now ranks seventh.

[Brilev] The capitalization of Gazprom is the capitalization of Russia, as
they say.
[Miller] Of course.

[Brilev] Aleksey Borisovich, you have come back to Moscow. You managed

to visit Berlin after Astana. Last Friday [13 January] all Russian television
channels showed your meetings in Germany. At what stage is the North
European gas pipeline? Did you have talks about it?
[Miller] Yes, you know, I met Economics Minister [Michael] Glos in Germany
and told him that work on the North European gas pipeline is proceeding
strictly to schedule and we have no doubt that in the middle of 2010 gas
will come to Germany directly from Russia.

[Brilev] To pick up on this subject, preparations are under way for the
first visit by [German] Chancellor [Angela] Merkel next week.
[Miller] Without doubt.
[Brilev] I would like to remind you the memorable phrase by Yushchenko at
the press conference with Putin that Russia and Ukraine must be responsible
correspondents in relations with Europe. It seems this is how it has been in
the last few days. Thank you. The Vesti Nedeli guest was Gazprom head
Aleksey Miller.  -30-

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19. PACE GLOBAL ENERGY SERVICES ISSUES WHITE PAPER
       ADDRESSING RUSSIA-UKRAINE NATURAL GAS DISPUTE

U.S. Newswire, Washington, D.C., Friday, Jan 13, 2006

WASHINGTON – Pace Global Energy Services has issued a White Paper
(http://www.paceglobal.com) reviewing the facts, history, and current
circumstances underlying the contract negotiation between Russia’s Gazprom
and Ukraine’s Naftogaz concerning Naftogaz natural gas purchases from
Gazprom and its transportation of Russian natural gas to other European
customers of Gazprom.

The White Paper comments on common themes and interpretations evident in
Western commentary, media coverage, and government pronouncements. In
issuing the report, Pace Global Chairman Timothy F. Sutherland stated:

“The suspension of deliveries for Ukraine consumption may have appeared
abrupt to Western observers, but it was by no means unanticipated by the
principal parties who had been discussing the issues for months or anyone
else that was paying attention to the 2005 negotiations or the long history
involved. The Russian Federation’s policies concerning gas service to FSU
states have been consistent for many years.

Based on the public record, Gazprom’s actions were consistent with what is
normally expected of any publicly-traded international energy company
operating under commercial contracts. These events are part of an evolution
from political, subsidized prices to market pricing, not vice versa as
commonly implied by Western commentators, media, and politicians.

“While time will tell whether delivery suspension was appropriate, the
actual impact on Gazprom’s European customers was minimal. Gazprom’s
actions have constantly demonstrated extremely high reliability over a long
period of time.” -30- (http://www.usnewswire.com/)
———————————————————————————————–
NOTE: Pace Global Energy Services, LLC has over 25 years of service,
providing independent and objective strategic energy consulting,
procurement, and risk management services in over forty countries.

Headquartered near Washington, D.C. Pace Global provides expert
support to gas and electric companies, energy developers, financial
institutions, commercial and industrial consumers, and public sector
agencies. Gazprom is a client of Pace Global Energy Services, LLC.
———————————————————————————————-
Contact: Tamara Pedersen, 703-227-8776 or pedersent@paceglobal.com;
Web: http://www.paceglobal.com; Link to White Paper:
then click on the icon for the article on the right side of the page.
———————————————————————————————
LINK: http://en.rian.ru/russia/20060112/42978606.html
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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20. GAZPROM’S COLD WAR ENDS

ANALYSIS & COMMENTARY: By Anna Raff
Assistant News Editor for Energy, Dow Jones Newswires
New York, New York, Monday, January 16, 2006

RUSSIA’S OAO GAZPROM knew it wasn’t going to win any popularity

contests when it cut off natural-gas supplies to Ukraine, just as toasting in
the New Year should have been in full swing.

But the decision by the world’s largest gas company did more than sober up
Ukrainians in the wee hours of Jan. 1, forcing them to come to grips with
prices in line with what other customers pay. Gazprom’s action sounded the
death knell for its anachronistic Soviet-era business practices. It was a
risky move, but one that both gas markets and investors should cheer.

Gazprom, 51% owned by the Russian state, has been demonized for pressing
Ukraine to abide by a deal struck earlier in 2005. Its heavy-handed approach
evoked a tongue-lashing from U.S. Secretary of State Condoleezza Rice,
reprimanding Russia for an “ironic and not good” start to its G8 presidency.

The dispute put Europe, which depends on Russia for a quarter of its gas
imports, on edge, as Ukraine siphoned off supplies destined for other
customers. But it shouldn’t have been a surprise. Russia reduced pressure in
a gas pipeline traversing Belarus to Europe in February 2004, temporarily
cutting supplies to several countries, in the midst of a similar pricing
dispute.

“This is really the end of the commercial Soviet structure for gas,” says
Jonathan Stern, director of gas research at the Oxford Institute for Energy
Studies in the U.K. “This is it. This is Gazprom saying that it’s over, and
it’s not pretty.”

Selling gas to former Soviet states at low rates was a Cold War policy. The
Kremlin used the discounts as foreign aid to countries in its sphere of
influence. As that sphere narrows — as it did in 2004 when Ukraine’s Orange
revolutionaries came to power on a pro-West platform — Russia’s implicit
subsidies will fall, boosting Gazprom’s bottom line by billions of dollars.

Under the new deal, Gazprom will get $230 for every 1,000 cubic meters of
gas, which Ukraine will buy for $95 instead of $50, with a Swiss-registered
intermediary making up the difference by contracting for cheap Central

Asian gas.

Gazprom has taken other moves to put its pricing on a more market-based
footing. Shortly after the dispute with Ukraine was settled, Gazprom hinted
that the prices it charges Bulgaria are too low. Another little-noted move
was Gazprom’s suspension of deliveries to Moldova, which said the

demand for higher prices was politically motivated.

The change in pricing policy is part of Russia’s larger effort to enhance
its reliability as a supplier, in part through two multibillion-dollar
projects.

One is the North European Gas Pipeline, which is to cross the Baltic from
Russia and make landfall in Germany and then in the U.K. With its German
partners BASF (ticker: BF) and E.ON (EON), Gazprom (which trades in

the U.S. under the symbol OGZPF in the pink sheets) broke ground in
December on the pipeline, scheduled to open in 2010.

The other venture is the Shtokman gas field in the Barents Sea, which

should catapult Gazprom into the global liquefied natural gas market.
The cooled gas can be loaded on tankers and traded much like crude
oil, giving Gazprom the flexibility to expand its customer base to include
the U.S.

“More LNG will lower the risk that Gazprom can’t get its gas to its
customers,” says Per Brilioth, managing director of Sweden-based fund

Vostok Nafta Investment, which has 90% of its assets invested in the
company. “The fact that Gazprom is pursuing LNG means that it’s starting
to become a normal business.”

Although Gazprom shares rose about 160% in rubles last year, Brilioth
believes the market has underestimated demand that was pent up by foreign-
investment restrictions. “There’s nothing like it,” he adds. “It’s as if you
could trade Saudi Arabia,” the world’s largest crude oil exporter.

That’s not to say Gazprom doesn’t have obstacles to overcome. “Investors
have long been concerned that any strategy decisions may be decided, or

even dictated by, the Kremlin,” says Chris Weafer, the chief strategist at Alfa
Bank in Moscow. And Europe’s response to Gazprom’s behavior may be to
stop signing up for additional supplies at a time when the Russian giant is
looking to boost its market share there. But that could prove short-sighted.

“I’m not sure it would be a logical reaction on the part of the Europeans,”
Stern says. After all, it’s hard to ignore the world’s biggest gas
reserves.  -30-
———————————————————————————————-
E-mail comments to editors@barrons.com
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21. QUESTIONAIRE REGARDING GAZPROM-NAFTOGAZ DISPUTE
                        Please fill out and return as soon as possible

Dmitri Klimentov, Bureau Chief/NYC
Russian Information Agency Novosti
New York, NY, Friday, January 13, 2006

NEW YORK – The Gazprom-Naftogaz dispute became the first major
economic issue of the year 2006. Please share your thoughts pertaining
to this matter by participating in this expert survey conducted by RIA
Novosti, the leading Russian news agency and Press Release Group,
US-based research company.

The findings of the survey will be published in the leading US and

Russian media.

[1] Which party, if any, benefited most from the Gazprom-Naftogaz

gas dispute?
a.   Russia
b.   Ukraine
c.  Other, please explain
d.  None, please explain

[2] Which party, if any, benefited most from the settlement of this

dispute?
a   Russia
b.  Ukraine
c.  Other, please explain
d.  None, please explain

[3] What would be the effect of gas price hike to the Ukrainian economy?
a.  Positive
b.  Negative
c.  Will not practically affect it

[4] What would be the effect of gas price hike to the Russian economy?
a.   Positive
b.  Negative
c.  Will not practically affect it

[5] To what extent, in your opinion, did the ‘gas war’ damage the
long-term Russian-Ukrainian relations?
a.  Damage is minor
b.  Moderate
c.  Serious

[6] Was the Western reaction (media, EU, US Dept. of State)
adequate
a.  one-sided (please explain)
b.  overly alarmist and politicized

[7] Position of which party to the dispute has been more clear, solid
and justified?
a.  Russia
b.  Ukraine

[8] What, if any, impact will the settlement of gas price dispute have on
foreign investments to:
a.  Russia   (none___ , negative___, positive___)
b.  Ukraine (none___, negative___, positive___)

[9] What, in your opinion, gives more fuel for concerns over energy
security issues:
a. Gazprom willingness to cut off supply to one of the consumers
(Naftogaz)
b. Siphoning off by Naftogaz gas quotas transported from Russia to
Europe via Ukraine.

Your additional comments, if any_____________________________
______________________________________________________
______________________________________________________

Please send replies to Dmitri Klimentov  DKlimentov@msn.com

Thank you. http://www.rian.ru
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22.    THE FACTS ON MOSCOW’S SIDE
      Neither the facts nor U.S. interests justify siding squarely with Kiev

COMMENTARY & ANALYSIS: By Dimitri K. Simes
President, Nixon Center and publisher of the National Interest
Los Angeles Times, Los Angeles, CA, Saturday, January 14, 2006

RUSSIA FURTHER aggravated its relations with the West during its nasty
dispute with Ukraine over natural gas. Moscow was clumsy, aggressive and
self-defeating in its handling of the spat with Kiev over how much Ukraine
should pay for its Russian gas – resulting in a temporary cutoff of supplies
to Europe.

But neither the facts nor U.S. interests justify siding squarely with Kiev,
as Secretary of State Condoleezza Rice did last week. It’s easy to assume
the worst from Russia, given its history, its current conduct and American
domestic politics, where being tough on the Russians always sells.

But contrary to what Americans might assume, this time Russian President
Vladimir V. Putin has the facts on his side. Moscow cannot be expected to
continue to subsidize Kiev when the Ukrainian government wants as little as
possible to do with Russia.

There’s no question that Russia’s behavior left much to be desired. It
angrily raised its price by nearly 50% after Ukraine refused to accept an
earlier price hike. Russia’s state-dominated gas monopoly, Gazprom, also
staged provocative televised exercises demonstrating its willingness to turn
off its neighbor’s gas in midwinter.

Though Gazprom and Putin insisted that the dispute was strictly economic, a
chorus of Russian politicians and commentators boasted that Moscow would

not only punish the defiant Ukrainian President Viktor Yushchenko, but it
could possibly even influence voters to elect pro-Russian candidates in
upcoming Ukrainian elections.

Moscow’s greatest mistake, however, was in failing to anticipate the obvious
fact that once Gazprom removed Ukraine’s share of the gas from Western
pipelines, Kiev would (as it had done before) siphon off Russian gas,
sharply reducing supplies to Europe. It was equally obvious that Kiev would
receive considerably more sympathy from Europe than Moscow.

Under the circumstances, it is perfectly appropriate – indeed imperative –
for the U.S. and the European Union to engage the Putin government in an
urgent discussion about Russia’s obligations if it wants to be a reliable
supplier and an energy superpower. But the West should bear in mind that:

     [1] Russia demanded from Ukraine the same market price paid by

European nations that do not have special agreements with Moscow. Russia
was not contractually obligated to continue to provide gas to Ukraine at
prices so heavily subsidized that Ukrainians actually paid less than Russians.
     [2] Ukraine’s price of $50 per thousand cubic meters was not guaranteed
beyond Jan. 1, 2006. That deal was based on an economic partnership with
Russia that Yushchenko has rejected.
     [3] Belarus pays Russia slightly less than $50 per thousand cubic meters,
but it agreed (after Gazprom cut off its gas) to put its major pipeline
under Gazprom’s control, an arrangement adamantly rejected by Ukraine.

Rice and others condemned Russia by arguing that the transition to market
prices should be gradual. But this seems to be the opposite of what the
International Monetary Fund has demanded of Iraq (with U.S. blessing) by
tripling gas prices in the middle of the insurgency. Nor was it what the IMF
(again with strong U.S. support) demanded from Russia in the 1990s, when it
insisted on price liberalization, fueling hyperinflation and massive
unemployment.

Reasonable people may expect Putin not to interfere with Ukraine’s Orange
Revolution. But it’s unreasonable to demand that the Kremlin actually
subsidize political changes it views as damaging to its vital interests. Yet
Yushchenko has made supporting revolutions against regimes friendly to
Russia one of his foreign policy priorities.

It defies common sense to believe that the U.S. can pursue policies Russia
considers hostile and still expect cooperation on Iran, North Korea,
counterterrorism and nonproliferation. Rice has made it clear she expects
Russia to side with the U.S. against Iran.

But deterioration in the U.S.-Russian relationship makes it more likely
that Russia will veto the United Nations sanctions the administration hopes
to impose on Tehran. Moscow is far from a perfect partner for the U.S. But
we should think twice before taking positions that may prompt it to stop
being a partner at all.  -30-
————————————————————————————————————-
http://www.latimes.com/news/opinion/commentary/la-oe-simes14jan14,0,1122512.story
————————————————————————————————————-
The Nixon Center, Washington, D.C., is a non-partisan public policy
institution which operates as an effectively independent division of The
Richard Nixon Library and Birthplace Foundation. The Nixon Center’s

Program on U.S.-Russian Relations is directed by Nixon Center
President Dimitri K. Simes and Vice President and Senior Fellow Cliff
Kupchan. http://www.nixoncenter.org/index.cfm
——————————————————————————————–
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========================================================
                        PUBLISHER AND EDITOR – AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer
Emerging Markets Private Equity Investment Group
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707
Mobile in Kyiv: 8 050 689 2874
mwilliams@SigmaBleyzer.com; www.SigmaBleyzer.com
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      Power Corrupts and Absolute Power Corrupts Absolutely.
        Be A Vice-President In The Continuing Orange Revolution 
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return to index [The Action Ukraine Report (AUR) Monitoring Service]
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